MOB LOANS.
insider deals.
terrorism financing.
confidential reports
from state regulators
show how florida bankers
made risky bets,
broke the law,
enriched themselves
and their friends
but hurt their
own institutions —
and got away with it.

1FAILURE IN FLORIDAEditor's Note: Regulators closed Florida Community Bank in January 2010 and sold its assets to an unrelated Miami-based holding company that retained the name of "Florida Community Bank." The Florida Community Bank referenced in this story is the entity closed in 2010.A reputed frontman for Philadelphia organized crime boss â€œLittle Nickâ€ Scarfo received millions in loans from a small South Florida bank.ASSOCIATED PRESS / BILL CRAMERSarasota lawyer John Yanchek was sent to prison over illegal property deals and was lent $1.6 million from Peninsula Bank.STAFF PHOTO / DAN WAGNER

Federal agents shut down Coastal Community Bank in July 2010. Two weeks after the Herald-Tribune published an investigation of this bank and others, the CEO and two others from Coastal Community were indicted and accused of stealing $4 million from a federal loan program.The (Panama City) News Herald / Terry Barner

IN FLORIDA’S BANKING DEBACLE, PLENTY OF BLAME TO GO AROUND

Almost 70 banks failed in Florida during the last five
years.

Most executives say the failures were not their fault. They
blame a tanking economy. Or meddling government officials. Or people who
borrowed more than they could afford while the market was cooking hot.

But these bankers are wrong.

At least half of Florida’s community banks failed because
their leaders were greedy, arrogant, incompetent or sometimes corrupt, a
Herald-Tribune investigation found.

The newspaper obtained previously confidential state records that
show how failed bankers broke the law, manipulated financial documents and
gorged themselves on insider deals. These bank records had never before been
collected by an American newspaper.

Sixty-eight banks failed in Florida since the Great
Recession began, second-most to Georgia, and the misdeeds were found in
communities all across the state.

In the farm town of Immokalee, Florida Community Bank
executives lent millions of dollars to mob associates while a terrorism
financier moved money in and out of its vaults.

In the Panhandle, Coastal Community Bank bought an insurance
company from the chief executive's son and sold it back to him three years
later at a $900,000 loss.

At First Commercial Bank of Tampa Bay, employees were so
fearful of the chairman that they met privately with state officials and told
them of secret dealings, altered documents and questionable loans.

Not all of the failed community banks have been accused of
wrongdoing. Some made sensible loans and were undone by borrowers
who took on too much debt during the real estate boom and couldn't repay.

But banking's worst offenders made insider loans and
business deals to enrich themselves at the expense of their own banks and,
ultimately, the public. Other banks lent millions of dollars to mobsters, drug
dealers, convicted felons and developers with prior bankruptcies.

In flush times, as Florida's real estate prices soared to
new heights, bankers rewarded themselves with large salaries and generous
dividends. One local banker used a private airplane to fly across the country
while others held meetings at lavish beach resorts.

Regulators saw this behavior but often they were too timid
to act while the economy was humming. When regulators did object, bankers
ignored the warnings, hid important documents, removed conversations from board
minutes and doctored financial reports to make things seem better than they
were.

Even after home prices fell and hundreds of thousands of
Floridians stopped paying their mortgages in 2007, many bankers forged ahead --
continuing to make risky loans and payments to themselves as their banks lost
money.

Most of the failures in Florida involved community banks,
small institutions founded to serve local customers.

Community bankers are vital to small cities and towns as a
source of money to build new shopping plazas, office buildings and
neighborhoods.

But some outgrew their local roots to become large and
unwieldy. They made loans far beyond their home turf with inexperienced
employees handling complex real estate transactions.

In all, the failures cost the Federal Deposit Insurance
Corp. more than $11 billion to clean up. The exact cost to America's local
economies is unknown but clearly felt.

The fallout is seen everywhere: in the ruined credit of
Americans who walked away from homes they could no longer afford; in cities
like North Port and Lehigh Acres, beaten by wave after wave of foreclosures; in
stagnant wages and frozen credit; in the millions who still struggle to meet
the rising costs of milk and eggs and bread.

Even with clear evidence of wrongdoing, few bank officials
will be arrested or charged with a crime.

Many more still work in the industry today. Just six banks
have been sued by the federal government, while 10 others settled out of
court -- with insurers covering the damages.

To investigate the reasons for Florida's bank failures, the
Herald-Tribune obtained state banking reports that had never before been made
public. The documents are so secret that even federal judges have kept them sealed in court filings.

But these examinations become public record one year after a
bank fails thanks to a law passed by the Florida Legislature in 1992. No other
state permits access to such reports until at least 50 years after a failure.

In 44 states, bank examinations are either destroyed or
permanently sealed after an institution fails.

The newspaper collected 3,000 pages covering 40 of the banks
overseen by the Florida Office of Financial Regulation. It also built a
database of nearly 400,000 mortgage and foreclosure records and reviewed 25
reports published by the FDIC Office of Inspector General.

Reporters visited a dozen counties and conducted more than
90 interviews with bankers, borrowers, regulators and analysts.

Among the newspaper's findings:

•
Thirty-four of the 68 banks broke federal or state laws, ignored repeated
warnings from regulators, had high amounts of insider loans or made risky bets
on customers who clearly couldn't repay their loans.

• Banks
lent more than $400 million to borrowers convicted of crimes, indicted by
federal prosecutors or dogged by a past bankruptcy. These were not mortgages
for people to purchase homes, but development loans to buy land and build on
it. Each loan went into default.

Florida Community Bank, for example, lent $8 million to a
company partly controlled by Leonard Mercer, identified by New Jersey law enforcement
as a "front man" for the "Little Nicky" Scarfo crime
family.

•
Twenty-one banks engaged in some form of insider dealing. Although these
transactions were not illegal, they raised questions from regulators about
conflicts of interest. Banks leased property from executives, bought cars from
dealerships owned by directors, provided jobs for relatives and subsidized
sister companies owned by insiders. At Ocala National Bank, directors started
their own mortgage company, lost $1 million and persuaded the bank -- by
threatening a lawsuit -- to pay them off.

• More than
200 loans to insiders were never repaid, and regulators scolded 17 banks for
lending more to officers and directors than was legal. In Port St.
Lucie, the adult children of Riverside National Bank's chief executive borrowed
$3.8 million. The bank wrote off the losses when they did not repay.

• Eighteen
banks paid a dividend to investors during years they lost money. Essentially,
these banks were giving out cash that they could have used to cover growing
problems created by foreclosures and the collapse of the housing market. Naples-based
Orion Bank paid out $28 million in 2007 -- the same year it lost $6.1 million.

• Bankers
ignored a declining real estate market and warnings from regulators to slow
down. They made some of their biggest loans after the slump took hold, and
provided borrowers additional cash to keep up with their payments. Sarasota's
Century Bank lent more than $70 million to just 10 borrowers in late 2006 and
early 2007. One of these borrowers had already spent time in prison; three
others would later do the same. All of those loans went into default.

• Only
three people have been charged with crimes related to their banks. Orion CEO
Jerry Williams was imprisoned for lending money that was later used to buy
stock -- a practice meant to fool regulators into thinking a bank has more
capital than it actually does. Four other banks -- Florida Community Bank, First
Priority Bank, Lydian Private Bank and Community National Bank of Sarasota
County -- were accused by regulators, shareholders or employees of similar
behavior. No one has been prosecuted.

"Bankers operated like riverboat gamblers," said
Jack McCabe, a Florida real estate consultant. "They threw caution to the
wind to prop up their bottom lines. The country suffered, but very few have
been brought to justice."

And it could happen again.

In Florida, the government has undertaken no studies to
examine why so many banks collapsed nor has it written any new laws to prevent
similar failures in the future.

In fact, the state has moved to further deregulate the
industry, with managers appointed by Gov. Rick Scott cutting 10 percent of
employees in the Division of Financial Institutions and closing half of the
regulatory offices across the state.

Top financial regulators vow to give bankers more freedom --
even when history suggests that without oversight, they take risks that
ultimately hurt themselves, the economy and ordinary Americans.

The newspaper spoke with more than two dozen bank leaders
and all but one said their banks closed due to forces beyond their control --
meddling by the government, the real estate downturn or homeowners who stopped
paying their bills.

Florida's top regulator agrees with them.

Instead of faulting bankers, Drew Breakspear, the head
regulator in this state, attributed the failures largely to homeowners who were
"out of their league in terms of their spending habits."

But that analysis is flawed.

The newspaper found that many banks encouraged borrowers to
fudge their incomes to qualify for bigger mortgages. And most Florida
institutions went under because of multimillion dollar loans to real estate
developers -- not to average home buyers.

State examiners found Peninsula Bank was awash in questionable loans and practices and insider dealings before it failed.STAFF PHOTO / DAN WAGNER

Questionable ethics

Peninsula Bank showed all the signs of a troubled
institution.

It lent millions to developers whose behavior should have raised red flags. A property flipper who later went to
prison. An attorney suspended three times from the Michigan bar. A builder sued
four times for copyright infringement. And six developers with a past
bankruptcy.

None of those people would ever repay their loans.

Peninsula also dealt with dubious customers in other areas of the bank. A money launderer moved cash in and out of its vaults. A
jury found that it lent $10 million to a man running a Ponzi scheme.

Mortgage records show that it also lent millions to
insiders. And during its final months, state examiners say a director accused the CEO of using
accounting tricks to hide information from regulators.

Peninsula failed in June 2010, costing the FDIC $195
million.

Once a small bank based in Charlotte County, Peninsula took
off when Simon Portnoy entered the picture. In 1995, Portnoy led a takeover and
grew the bank from just two offices and $50 million in assets to a statewide
real estate player with 14 branches on both coasts and $650 million in assets.

As home prices rose, Peninsula soared.

But below the surface, the bank's growth was fueled by loans
to people with questionable ethics or past financial problems.

In particular, Peninsula lent nearly $50 million to
developers who had once declared bankruptcy and later sought money to invest in
raw land, develop golf course communities, buy office buildings and erect
everything from town homes to hotels across Florida.

A company controlled by Miami Beach developer Mordechai
Boaziz received nearly $9 million from Peninsula in August 2006 to finance the
renovation of a Tampa hotel even though one of his companies filed for
bankruptcy two years earlier. He also was in the midst of a federal lawsuit in
which former partners accused him of misappropriating $8 million from a hotel
business in the Midwest.

Boaziz denied the allegations in court and the case was
ultimately dismissed. Boaziz defaulted on his loan from Peninsula in December
2009.

Other questionable loans included: $6.25 million to a
company controlled by David P. Hickey, a Michigan attorney suspended for failing
to repay a loan to a client; nearly $10 million to companies managed by James
W. DeMaria, a Spring Hill developer who was accused four times of copyright
infringement and later settled the cases in federal court; and $1.6 million to
John Yanchek, a Sarasota attorney later imprisoned for illegal property flips.

All of those loans went into default.

'Cash for trash'

Then there was James Bovino.

The founder of a bank in New Jersey and a real estate
developer with projects in six states, court records show Bovino already owed
hundreds of millions of dollars to other institutions when he took on even more
debt from Peninsula in 2008.

The bank lent him $12 million despite the fact that the
world financial system was on the verge of seizing up and companies Bovino
controlled in Arizona and New Jersey had filed for bankruptcy just a few months
earlier.

"Remember what's going on at this time," said
Raymond Vickers, an economic historian and former regulator. "We're
talking October 2008. No other bank in the country is lending money."

The loan was one that bank analysts call "cash for
trash." State examinations show Peninsula had foreclosed on 200 acres in
Port St. Lucie just a few months earlier, and was anxious to get the land off
its books. So it transferred the property to Bovino at no cost and provided him
with $12.1 million.

The transfer seemed to benefit the bank because it made it
look like Peninsula had replaced a bad loan with a good one. But state
regulators said the transfer violated federal accounting rules and complained
that Bovino did not have to put any of his own money into the deal. They said
nothing about his bankruptcies.

"No prudent banker would make such a loan,"
Vickers said.

Bovino eventually defaulted.

Reckless behavior

Again and again, Peninsula seemed to do business with people
whom it should have avoided.

One depositor pleaded guilty to money laundering, regulators
found. Another customer was Robert Bentley, the investment adviser who pleaded
guilty to orchestrating a $380 million Ponzi scheme.

In June 2006, a federal jury found that a senior vice
president at Peninsula -- and the bank itself -- had assisted Bentley's operation.
Jurors said that Peninsula vice president Joseph Marzouca helped the scheme
stay afloat by providing money to a company controlled by Bentley when his
investors demanded they be paid.

A jury ordered Marzouca and the bank to pay $13.1 million in
damages, but the decision was overturned on appeal. An appellate court ruled
that Marzouca and the bank were not responsible for the Ponzi schemer's
actions.

Marzouca remained in the industry and became CEO of Davie's
Floridian Community Bank in 2008.

"The receiver tried to make more out of it than it was,
and the jury was influenced by that," Marzouca said. "That's why we
appealed and the three judges on the appellate court ended up throwing it
out."

Meanwhile, Peninsula insiders were helping themselves to the
bank's money.

In 2009, long after the housing boom, Peninsula had nearly
$18 million of insider loans on its books -- up from just $5 million two years
earlier and enough to rank it among the top five of all Florida banks that
failed during the Great Recession.

Most insider loans are not illegal and are not necessarily a bad
thing for a bank, but they can be an indicator of reckless behavior by
executives, officers and directors because they are not "arm's-length
transactions" -- meaning it is hard to tell if the insider is getting a
better deal than an ordinary customer might.

"Why do insiders need to borrow from their own
banks?" Vickers said. "If they've got good credit, why not go across
the street?"

With losses mounting, Peninsula began to cut corners.

State officials found that executives were slow to write
down bad loans, making the bank seem healthier than it was. In August 2009,
three out of every four bad loans were less likely to be repaid than the bank
reported. Peninsula should have moved $14 million out of its capital reserves
and into a fund to protect against losses, regulators said.

Within the bank, dissension began to bubble up. One insider
started wondering whether the CEO was hiding important information, according
to regulators' reports.

Portnoy, the CEO, refused to downgrade struggling loans, a
director said in a private meeting with the state, and tried to give extra
money to customers who were already behind on payments.

When pressed by directors, Portnoy said he could
"fire" the entire board if he wanted to, because of an agreement that
gave him and two other shareholders special voting rights, according to a
regulatory report.

The discord boiled over in June 2009, when board member
Marcus Faust successfully lobbied for Portnoy's removal while accusing him of
"falsifying, or at least distorting" important bank records.

"The validity of Mr. Faust's allegations is
unconfirmed," state officials wrote.

No one from Peninsula has been charged with a crime. But the
FDIC sued Portnoy and nine of the bank's officers and directors in April, accusing
them of gross negligence in their management of the institution.

The crisis could have been avoided, had the system not been
choked by risky mortgages, dangerous investments, a lust for growth and
regulators too meek to put a stop to it all, the commission said.

According to a separate report from the FDIC, examiners
reacted slowly and "had difficulty restricting risky behavior while
institutions were profitable."

In some cases, the FDIC's inspector general said, regulators
knew about problem banks that had repeatedly broken the law and still took
little or no action against them.

The FDIC has sued officials at six failed banks in Florida,
claiming gross negligence. Officers and directors at 10 others have settled
out of court by agreeing to pay the FDIC nearly $17 million from insurance
policies.

Even other bankers questioned some of the decisions -- both
by executives and regulators -- during the boom and the crash.

Jody Hudgins, a veteran Sarasota bank executive, saw counterparts
who tried to build their institutions as fast as they could with an eye toward
selling them off to out-of-state companies seeking a foothold in Florida.

From 1994 to 2008, more than 230 new banks started in the
state. This ramped up competition for customers and experienced staffers.

"There were just too many banks," said Hudgins,
who now serves as chief credit officer for First National Bank of the Gulf
Coast in Naples, "and not enough really good bankers who had been in the
business for 25 to 30 years and had experienced all the different kinds of
crooks and what they can do to you."

Meanwhile, there was increased pressure to find good
customers. With fewer and fewer options, some bankers turned to borrowers with
bad credit, past jail time or clear evidence suggesting they would never make
good on the debts.

In many cases, making loans to people with questionable
backgrounds was a conscious business decision, according to Bill Black, a
University of Missouri professor and former Savings & Loan regulator.

It was a strategy used by banks and thrifts during the
run-up to the Savings & Loan crisis of the 1980s and early 1990s, Black
said. This allowed lenders to make more loans and book higher profits than they
might have through the more arduous task of finding creditworthy borrowers.

"Making money in banking is really hard," Black
said.

If a bank wants to grow by making good loans, it has to seek
borrowers with the best credit histories and compete for their business by
offering the lowest possible interest rates.

But if a bank focuses on making loans to borrowers with poor
credit, it can charge much higher rates and will not face the same competition.

"If you make really crappy loans and charge a premium
to people with nowhere else to go, you can make money really fast," Black
said.

Hudgins, the bank executive from Sarasota, said: "Why
did loan officers make so many loans to people who had problems in their past?
Because it helped them meet their quotas."

Seeking answers

There has been a public vetting of the crisis by federal
leaders -- but nothing similar by the state of Florida.

Instead of offering answers to the latest financial meltdown
and solutions to prevent another in the future, Florida is headed in the
opposite direction. The state cut the number of employees in the banking
division by 10 percent, shut down four offices across the state and encouraged
the exodus of that agency's most experienced examiners.

In recent years, Florida lawmakers sought to make the state
friendlier to businesses and loosen regulations on everything from hairdressers
to auto mechanics.

Now the state's top banking regulator says there is no need
to get tougher on the industry.

"'Tougher' is a hard word to use because we do live in
a free-enterprise environment," said Drew Breakspear, the state's top
regulator.

"Bank and other financial regulators must change so
they do not stand in the way of banks."

The Office of Financial Regulation sends in a team of
examiners to state-chartered banks every two years to look into their
operations. These reviews typically last three weeks and include a look at loan
documents, meetings with bank leaders and reports on insider loans, deposit
accounts and other factors that contribute to a lending institution's health.

The examiners produce reports that become public only after a
bank fails.

Those documents were the basis of the Herald-Tribune's
investigation, and they show how nearly half of the state's collapsed
institutions broke the law, had excessive insider dealings or ignored basic
banking practices.

Some banks, for instance, did not conduct basic background
checks on the riskiest customers. Others exceeded lending limits to insiders.
Still others attempted to ward off the collapse by continuing to give money to
borrowers -- throwing good money after bad, regulators said -- in order to keep
loans from going into default.

Eventually, default came for tens of thousands of borrowers.
This set off a foreclosure crisis, made it more difficult to obtain a loan, and
finally swept up small community banks whose balance sheets were overrun by bad
loans.

"You can fudge things for a while by gaming and hiding
but death is inevitable," says Black, the Missouri professor.

2'ONE-MAN SHOW'Editor's Note: Regulators closed Florida Community Bank in January 2010 and sold its assets to an unrelated Miami-based holding company that retained the name of "Florida Community Bank." The Florida Community Bank referenced in this story is the entity closed in 2010.Federal agents say Eli Hadad was connected to the Israeli mob before he received millions in loans from Florida Community Bank in Immokalee.THE (SYRACUSE) POST-STANDARD / DENNIS NETTFlorida Community Bank CEO Stephen Price would not answer questions from a reporter about his institutionâ€™s demise.STAFF PHOTO / ELAINE LITHERLAND

Florida Community Bank executives built a billion-dollar empire in a small farming town before the enterprise fell apart during the Great Recession.STAFF PHOTO / ELAINE LITHERLAND

At A Rural Bank, A Classic Case of ‘Be Careful Whom You Lend To'

IMMOKALEE -- Federal agents say Eli Hadad borrowed $500,000
from the Israeli mob to buy and sell the club drug Ecstasy in South Florida.

But the deal went bad. So a group of enforcers flew to
Hadad's home in Miami, threatened to throw his business partner off a balcony,
and took the title to Hadad's house until he repaid what was owed.

Federal authorities learned of the deal and arrested Hadad.
But charges against him were later dropped and he became a key witness in the
government's prosecution of the fearsome crime syndicate known as the
"Jerusalem Network."

Three years later, Hadad again had trouble repaying a debt --
this time a $6.7 million loan from one of Florida's biggest banks.

Florida Community Bank made a habit of giving money to
people with questionable backgrounds, a Herald-Tribune investigation found. It
lent more than $70 million to mob associates, convicted felons, people with
past bankruptcies and others who lacked the ability to repay.

The personal and financial histories of these borrowers were
widely available on the Internet and in court documents long before they
received loans from Florida Community.

The leaders of this South Florida bank also accepted
deposits from a terrorism financier and money launderer, enriched directors
with lucrative insider deals and were accused of illegal stock transactions to make
the bank look stronger than it was.

This approach to banking ultimately killed Florida
Community and devastated the small farming town of Immokalee where it was
based.

The failure cut deeply into the wealth of the town's most
prominent residents, among them the widow of a farmer who lost her life savings
and now lives on Social Security benefits. It wiped out the pensions of its
employees, hurt small businesses that had relied on the bank for loans and made
it harder for the town's wealthiest people to continue backing local charities.

But Florida Community's failure had an even wider impact,
costing the American banking system hundreds of millions of dollars to clean
up.

During the Herald-Tribune's yearlong investigation of bank
failures, Florida Community stood out as one where financial misdeeds were most
pronounced, and where its leaders -- particularly its chief executive -- openly flouted laws and regulations meant to protect it.

CEO Stephen Price and most board members would not comment
for this story. No one has been charged with a crime.

The Federal Deposit Insurance Corp. -- which had to pay $353
million to cover the bank's losses in January 2010 -- sued its leaders for
"gross negligence" in March 2012.

An attorney representing the directors says a judge has dismissed
negligence claims against the men. But the case remains pending.

"It would be inappropriate to comment about individual
borrowers of the bank," Atlanta attorney Mary Gill said in a statement.
"However, we note that, of the many loans made by the bank over the years,
the action filed by the FDIC is focused on just a small handful of those, only
one of which is referenced in the article today."

To investigate why Florida Community failed, the newspaper
obtained previously confidential regulatory reports from the state. It also
examined federal criminal and bankruptcy documents, sought court filings in
four counties and reviewed 6,500 mortgage and foreclosure records.

Those court records and regulatory reports show:

Florida
Community made risky loans that were never repaid to people with questionable
backgrounds. Of the $230 million in non-performing loans at the time of its
collapse, 30 percent went to people who had been charged with a crime, who had
once declared bankruptcy or who had clearly demonstrated that they couldn't
afford to make payments. For instance, the bank lent $8 million to a company
partly owned by Leonard Mercer, identified years earlier by federal agents as a
"front man" for the "Little Nicky" Scarfo crime family.
Mercer's company defaulted 13 months later.

The bank
had nearly 200 deposit accounts that regulators identified as
"high-risk" for terrorism financing or money laundering. Among those
depositors was a South American terrorism financier whose exploits were well documented
on the Internet, regulators say. When confronted with this, Price, the CEO,
said bankers should not have to worry about where deposits come from.
"Bankers should not be forced to act as cops, jury, judge and God,"
he told regulators.

Florida
Community engaged in self-dealing. These transactions are not illegal but
raised questions by regulators about conflicts of interest. The bank paid a
company belonging to director Daniel Rosbough $1.3 million to lease property
for one of its branches, and bought at least 15 vehicles from a dealership
controlled by director Patrick Langford. The bank also invested $836,000 in a
company partly owned by Price that built an opulent bank branch in a nearby
city.

When the
real estate market started to deteriorate, Florida Community broke one of the
fundamental rules of banking by throwing good money after bad. It loaned
borrowers extra cash to keep making interest payments and underreported problem
loans. In 2009, regulators forced the bank to issue a statement to investors
saying its financial reports could not be relied upon.

Price
lined his own pocket and that of another banker as both of their institutions
were failing. Orion Bank gave Price an unsecured line of credit for $1 million
in December 2007 and Florida Community lent Orion's CEO, Jerry Williams, $5.9
million in October 2008. Orion later failed and Williams was sent to
federal prison for financial crimes. Price filed for bankruptcy protection in
2012. Neither loan was repaid.

Florida
Community is accused of brokering at least one illegal stock transaction
to bring in money when times were tough. A lawsuit filed in Missouri alleges
that the bank lent $700,000 to a pair of investors in order for them to buy
stock. The case is set for trial in September. Florida Community also issued a
$200,000 loan to a local family that used bank shares as collateral. Both loans
are viewed by regulators and banking analysts as manipulative because they make
it look as if a bank has more money than it actually does to cover potential losses.

As the
bank's fortunes waned, lifelong friends say Price played down Florida
Community's financial problems and fooled them into investing more money in the
institution.

"We bought the stock because we believed in
Steve," said Jack Whisnant, whose family accumulated $18 million worth of
stock over the years.

"You might think some faceless executive on Wall Street
would screw you, but it's hard to believe someone who you went hunting and
fishing and snow skiing with would do that to you."

Florida Community Bank became a real estate powerhouse, with $1 billion in assets, yet it could trace its roots to Immokalee, a rural community that is one of the poorest in Florida.STAFF PHOTO / ELAINE LITHERLAND

Up from the swamp

Immokalee is a town on the northern edge of the Everglades,
wedged between Miami and Naples. The main industry, as it has been for decades,
is farming.

Major grocers and food chains, from Publix to Burger King,
buy tomatoes and other vegetables grown in vast Immokalee fields. Winter
harvests draw tens of thousands of migrants from Central America and Haiti each
year, and many have stayed, remaking Immokalee in their image.

Main Street is lined with shops with names like Tienda El
Quetzal, El Taquito and the Haitian American Latino Market. Trailer parks teem
with pickers who are bused daily to the fields.

Immokalee also is one of the state's poorest cities. The
median income is $22,000, and only one-third of adults have a high school
degree. There is no movie theater, and just one major supermarket.

But Immokalee's high school football team, with its mix of
nationalities, is one of the best in the state.

Disdain for regulators

Stephen Price grew up in Immokalee, played guard on the high
school football team and followed his father's footsteps into a banking career.

Bill Price took over Florida Community in 1963, a time when
the bank served mostly as a lender to local farmers. He was seen by people in
the community as a shrewd, well-respected man who grew the bank slowly -- but
with consistent profits for shareholders.

The bank was considered such a safe bet that most of the
1,200 shareholders lived nearby and the board of directors was made up
primarily of farmers and businessmen from the area.

He was so trusted that older residents still refer to him as
"Mr. Price" and can point out the modest ranch home where he lived
until his death in 2009.

Immokalee residents still point out the home of Bill Price, the venerable banker who handed the reins to his son.STAFF PHOTO / ELAINE LITHERLAND

"Bill Price was a tough businessman, but he was
fair," said Pam Brown, whose father was a large shareholder.

The elder Price was a powerful figure not just in Immokalee,
but in the banking industry. He was appointed president of the Florida Bankers
Association in 1975, and became a hero to colleagues when he retired with a
fiery, widely circulated letter denouncing government regulators as a
"crew of knee-jerk stooges."

"It's stressful, disconcerting and demeaning as well as
insulting," he wrote in the letter, published in the American Banker
newspaper, "after almost a half century of high-performance banking and
community involvement to be told by immature, inexperienced, neophyte examiners
that you're doing everything wrong because you don't follow the know-it-all
checklist procedures imposed by Congress."

He later told the American Banker, "I don't need some
26-year-old examiner telling me I'm stupid and don't know what I'm doing."

Rising to the top

Stephen Price, who inherited his father's distaste for
regulators, wanted to outgrow his Immokalee roots.

He once called his hometown a "labor camp," and
pushed the bank away from its history as an agricultural lender to one that did
big-money deals with developers statewide.

Though Florida Community kept lending to businesses in its
home city, its greatest opportunities for growth lay along South Florida's
coasts.

Price had experience there. He spent nine years lending to
builders and developers in Fort Myers and Venice after graduating from college,
and he adhered to the notion that "if you build on dirt, you can't get
hurt."

The bank paid high interest rates to attract "hot
money" deposits from around the country and used loan brokers to find
developers with a hankering to build strip malls, hotels, offices and even an
amusement park.

The developer of Zoomer's Amusement Park in Fort Myers - Dr. Ronald John Heromin - defaulted on $11.5 million from Florida Community and was later charged with illegally distributing painkillers. He pleaded not guilty and a federal trial date has not been set.STAFF PHOTO / MICHAEL BRAGA

Florida Community doubled its assets every two years,
reaching $1 billion in 2006.

The bank's success, Price once told American Banker, was
based on making "character" loans.

The bank looked at a borrower's history, and his ability to
manage finances and keep promises, Price told American Banker. But Price said
regulators frowned on that kind of old-fashioned community lending. They wanted
Florida Community to put more emphasis on credit history and financial
wherewithal.

"Regulators are asking us to look more like other
banks," Price told the newspaper. "My response to them is, 'We are
one of the highest-performing, best-capitalized banks in the nation, and you
want us to start looking more like them?'"

Character loans

As it grew, Florida Community seemed to put less emphasis on
the "character" of its customers.

In fact, some of its largest loans went to those with ties
to drugs, violence and financial misconduct.

In May 2005, developer Marvin Rappaport was named in a Key
West newspaper in a "corruption scandal" that later led to a federal
indictment of a local mayor.

The mayor, Jack London, told authorities that Rappaport
funneled $82,000 to county officials to approve building permits at his Florida
Keys resort.

Rappaport was not charged with a crime.

In an April 2006 report, regulators questioned why the bank
lent Rappaport $9.7 million just four months after reports had surfaced about
the scandal. Examiners also pointed out that Rappaport had been issued an
"order of prohibition" in California after conducting improper land
deals that inflated the value of real estate, used millions of dollars
"for purposes not intended," and helped an institution hide bad loans
during the savings and loan crisis of the late 1980s and early 1990s.

State regulators questioned that deal, but missed many
others.

Court records show that a company co-managed by Kenneth
Chadbourne, 39, received $1 million in January 2005, just eight months after he
was released from federal probation for selling Ecstasy. A company he
controlled with his family, American Invest LC, defaulted in 2008.

Leonard Mercer spent nine months in federal prison for
giving kickbacks to a Teamsters Union official in the late 1980s to finance a
chic restaurant in Palm Beach. He was later called a "front man" for
the dangerous Philadelphia gangster Nicodermo Scarfo, according to law
enforcement documents. New Jersey authorities say he bought a lavish home for
Scarfo and paid for it by dropping off a bag of cash to a loan shark.

A company controlled in part by Mercer borrowed more than $8
million from Florida Community in March 2006 to develop boat storage in Dania
Beach. The company defaulted 13 months later.

It is not clear how much bank leaders knew about these
borrowers before issuing the loans because personal financial documents are not
public record. Bank officials would not comment, nor would any of the
borrowers.

But in one case, there is evidence that Florida Community
knew it was making risky bets but decided to go ahead with them anyway -- even
with millions of dollars and the bank's health on the line.

Cash for trash

Four years after gangsters threatened his family and took
his jewelry and car as collateral for a debt, Eli Hadad was back in business.

He testified in 2006 against members of the Jerusalem
Network -- telling a jury that he borrowed money from the mobsters to buy
shelving, not Ecstasy -- and returned to his life as a real estate developer in
South Florida.

A company controlled by Hadad received a $6.7 million loan
from Florida Community in August 2006 to buy land in Broward County. The
company struggled to make interest payments less than a year later.

Instead of foreclosing, the bank helped the company repay
its debt by arranging the sale of his property to two of Hadad's friends.

A company controlled by Isaac and Veronica Mizrahi, of West
Palm Beach, paid $7.3 million for the land in February 2008 and Florida
Community lent them $9.7 million despite the fact that the real estate market
was already in steep retreat.

The extra money covered past interest owed by Hadad, fees
and commissions for real estate professionals and an interest reserve set up to
automatically keep interest payments current for two years.

Experts who reviewed the loan for the Herald-Tribune called
it an egregious example of bad banking.

The Mizrahis sued Florida Community, a loan officer and a
mortgage broker in May 2010 saying the bank should have known the couple could
not afford such a large loan.

They provided tax returns and financial statements that
showed they would not be able to keep up with payments. Meanwhile, real estate
prices were already falling, and once the interest reserves ran out, the borrowers
would have no way to repay.

A judge ultimately ruled against the Mizrahis, saying they
were obligated to repay the debt.

To Bill Black, a University of Missouri professor and former
federal regulator, the chain of transactions between Hadad, the Mizrahis and
Florida Community was reminiscent of the savings and loan crisis that saw so many institutions fail.

"We call it 'cash for trash,'" Black said.
"When an S&L wanted to cover up a bad loan, it made an even bigger bad
loan."

Insider deals

Rapid growth had its benefits.

The bank engaged in a series of lucrative deals with
directors that were neither illegal nor hidden but were mentioned in state regulatory reports and in documents filed by the bank with the U.S. Securities & Exchange Commission.

A company controlled by Daniel Rosbough, Florida Community's
vice chairman, bought the bank's Cypress Lake branch. He then leased it back to
the bank and collected $1.3 million from 2001 to 2008, according to documents
filed with the SEC.

"I think it was a fair deal," Rosbough said.

Patrick Langford, another director, sold the bank a fleet of
15 automobiles from his dealership in Labelle. SEC filings show Langford's
company generated $827,000 from the arrangement from 2002 to 2008.

A bank director’s car lot earned more than $800,000 when Florida Community bought a fleet of vehicles for top banking executives.STAFF PHOTO / ANTHONY CORMIER

Price, meanwhile, saw his annual compensation more than
double to $670,000 in six years.

The CEO's stock holdings increased from 45,000 to 180,000
shares and he took home nearly $75,000 in yearly cash dividends by 2007.

He owned a canalfront home in Lee County, a Piper Lance
airplane and a timeshare at a Utah ski resort, his March 2012 bankruptcy and
county court records show.

He also had a stake in the construction of a luxurious new
bank headquarters in Ave Maria -- the Catholic university town eight miles south
of Immokalee.

In early 2007, Price and his partners offered to build the
branch for $5.1 million. This is not illegal but was noted by regulators in their 2006 report.

The bank made an $836,000 investment in the project and
promised to lease the building back for $536,000 per year, according to SEC
records.

This would have been a 10.5 percent return for Price and his
partners, with guaranteed increases based on the rate of inflation.

"They spent a lot on that building," said Josh
Cox, a banking consultant who worked briefly for Florida Community before it
was seized by regulators. "I took a tour. It was as lavish as anything
I've ever seen."

The bank failed before the building was complete.

'Benevolent dictator'

Long before the housing meltdown, regulators expressed
concerns about Florida Community's practices.

As far back as 2003, state examiners warned bank executives
that they made too many loans to real estate developers who were building
everything from subdivisions to shopping malls.

Later reports said Florida Community did not have
experienced staffers and ventured too far from its natural market -- lending in
competitive regions such as Broward and Palm Beach and as far north as St.
Augustine.

The bank did not have a proper credit department, examiners
found, and Price was the only person on his nine-member board of directors with
any experience making complicated commercial real estate loans.

Most of the other members joined the bank under his father,
when it was still focused on financing farmers: five were in agriculture, one
was an auto dealer, another was a dentist and yet another owned a dry cleaner.

Regulators said Price had a stranglehold on the board and
the bank, running it like a "classic one-man show."

"It is the opinion of the examiners," one report
said, "that Mr. Price operates the bank as a 'benevolent dictator,' to use
Mr. Price's exact words, and that any dissension or question of his authority
by bank management would not be welcome."

Like his father, who once derided regulators as
"stooges," Price bristled at these characterizations.

Tempers flare

Tensions between Price and state officials reached a
breaking point in 2006, when regulators visited the bank and uncovered
troubling evidence in deposit accounts.

After the 9/11 attacks, examiners began to pay closer
attention to these accounts to track potential terrorists and stop criminals
from using American banks to launder money. Known as the Bank Secrecy Act,
these regulations were meant to keep tabs on customers who made large or
irregular deposits, wired sums of money, exchanged currency or conducted cash
transactions.

During their 2006 exam, regulators identified 188
"high-risk" accounts at Florida Community -- 70 more than it found in
the previous inspection. In one case, regulators said the bank had accepted
money from a man who had been "publicly linked to money laundering and
terrorist financing networks in South America."

The man's identity was redacted from regulatory reports by
state officials, but examiners wrote that "public information sources
available to the bank" showed how the depositor was involved in criminal
activity across the globe.

Examiners say that $60 million in suspicious money ran
through the bank, but Price and his executives had no idea where it came from
or what it funded.

At a meeting with examiners, Price said it was unreasonable
for the bank to act like a "CIA agent" and look up information about
depositors on the Internet.

"None of that information is relevant," he said.
"When the money leaves this bank, I don't care where it goes."

Price then warned regulators he would speak to their
superiors in Tallahassee if they did not change their conclusions. He also
threatened to close every suspect account, send letters to customers saying it
was because of "unreasonable government requirements," and include a
list of elected officials for the customers to contact.

Price's hostile response to regulators was unwise, analysts
say.

"When you fight with them, it only makes life more
difficult," said Ken Thomas, a Miami economist and bank consultant.
"All of a sudden you become a target. You get a big 'X' on your back.
Regulators begin wondering whether there are other problems at the bank they
have not uncovered yet."

Death spiral

By 2008, the bank was losing tens of millions of dollars.

The real estate market was sliding, and regulators tightened
their control over Florida Community through "a stipulation and consent
agreement," a tool examiners use to force banks to comply with the law.

The agreement forced the bank to weed out suspicious deposit
accounts, hire more experienced executives and limit risky lending.

The result was that operating costs rose just as the bank
began to shrink and lose money.

Although executives tried to hide the problems, examiners
were watching more closely than ever. In August 2008, they ordered the bank to
reclassify $64 million in loans that borrowers were struggling to pay and later
forced Florida Community to issue the following statement to investors:

"Florida Community Banks Inc. has determined that its
audited financial statements for the year ended December 31, 2008, cannot be
relied upon."

Besides thwarting its growth, regulators prohibited Florida
Community from paying dividends. That created a new set of problems for Price
and his fellow shareholders who had come to rely on the twice-annual arrival of
dividend checks in their mailboxes.

So Price reached out to friends for help.

Desperate for cash

Price was a lot like Jerry Williams.

Both men built banking empires by funding construction
projects all across the state. Both were considered brilliant executives and
drew praise from other bankers across the country.

With their banks in trouble and the housing market starting
to collapse, the two men exchanged millions of dollars in loans.

Price had an unsecured line of credit with Orion Bank for
$500,000, but that figure increased to $1.5 million in December 2007.

The FDIC criticized Price for exceeding the bank's $5
million lending limit on the loan to Williams in its March 2012 lawsuit against
Florida Community's officers and directors. Regulators complained that no
independent analysis was undertaken to value the Orion Bank shares and that
Price simply took Williams' word.

The lawsuit did not mention the fact that Price received a
loan back from Orion, nor did it mention his friendship with Williams, now in
federal prison for financial misconduct during the crash.

Neither loan was repaid.

Friends and neighbors

Price may have tried to save his personal fortune with the
Orion loans, but to save his bank he had to hurt some of his closest friends.

In Immokalee, families like the Whisnants, the Nobles, the
Priddys and the Browns had all known each other for generations.

They bought stock in the bank when Price's father was still
in charge and the investment was a proven winner. When the elder Price retired,
trust in the father was quickly transferred to the son. So when Steve Price
told investors the bank could turn things around in 2008 and 2009, they
believed him.

Mark Whisnant, who grew up with Steve Price and played on
the same football team in high school, proved to be a steady source of fresh
capital as the bank's fortunes waned. But Whisnant did not always have the cash
to make the purchases, so Price allowed him to borrow from Florida Community.

Whisnant and his son, Peter, borrowed about $700,000 in late
2007 and 2008 to buy shares, according to a suit filed against Florida
Community's successor in Ripley County, Mo.

Price "expressly represented that the bank was doing
well at the time, that this would be a good investment," the Whisnants
said in their suit.

It is unlawful for a bank to loan money in order for someone
to purchase its shares if the institution is not listed on a major stock
exchange. Experts say this is essentially a phony transaction -- the bank is
taking money from depositors and giving it to an investor who will put the
money back into the bank's vaults.

This makes the bank look like it has more capital and is
better able to withstand a downturn.

"You just don't do that," said Irv DeGraw, a St.
Petersburg banking professor. "That's the same stuff that got Jerry
Williams in trouble."

Williams, Orion Bank's former CEO, was sentenced to six
years in prison in June 2012 because he lent money to a customer who used some
of it to buy stock.

In a transaction separate from that with Whisnant, Price
also convinced shareholders to borrow from Florida Community using their stock
as collateral.

Pam Brown and her mother, Shirley, said they approached
Price to sell some of their shares in 2008. But they said Price advised them to
keep their stock and borrow against it instead.

"He said we should borrow the money to live on and use
the dividend checks from the bank to pay the interest," Brown said.

A bank is not allowed to lend against its own stock, said
Nicholas Ketcha, a former bank regulator who now runs his own New Jersey
consulting firm.

"Bank capital is supposed to be permanent," Ketcha
said. "It's supposed to be there to absorb losses."

The Browns say Florida Community sold their note to one of
the bank's directors. But both Brown and her mother said they did not know who
had bought their loans until two weeks after the bank was shut down.

The Browns finally received a letter dated Jan. 28, 2010 --
the day before the bank closed -- saying their loans had been transferred to a
trust belonging to the wife of Rosbough, the long-time director who also owned
one of the bank's branches.

Rosbough told the Herald-Tribune that he did not remember
buying the loans.

Liesa Priddy, who once worked for the bank and whose family
took a hit when the stock became worthless, said Price probably felt desperate
at the end and was willing to do anything to save the bank.

"In his mind, if it failed, it was a reflection on
him," Priddy said. "And Steve Price is someone who never made a
mistake."

3A GEORGIA CONNECTIONEditor's Note: Regulators closed Florida Community Bank in January 2010 and sold its assets to an unrelated Miami-based holding company that retained the name of "Florida Community Bank." The Florida Community Bank referenced in this story is the entity closed in 2010.

: Silverton Bank, based in Atlanta, was closed in 2009; its directors were later sued by the FDIC. Among those directors was Stephen Price, chief executive of Florida Community Bank in Immokalee.ATLANTA JOURNAL-CONSTITUTION / PHIL SKINNER

LEND CARELESSLY. SPEND RECKLESSLY. REPEAT.

ATLANTA -- Before his bank in Immokalee failed, Stephen Price
had a hand in the downfall of a larger institution that lent out money
carelessly and spent it recklessly -- on parties, a lavish new headquarters and multiple airplanes.

Price was one of 14 directors of the Atlanta-based Silverton Bank, which
was sued for "gross negligence" by the Federal Deposit Insurance
Corp. two years after failing in May 2009.

The suit accused Price and his fellow directors of
"corporate waste" and said they had disregarded "ominous warning
signs in the economy" as the bank continued to make risky real estate
development loans. This, even after the housing market had gone into a
veritable tailspin.

The FDIC said it lost $386 million after Silverton failed.

"This case presents a textbook example of officers and
directors of a financial institution being asleep at the wheel and robotically
voting for approval of transactions without exercising any business judgment in
doing so," regulators wrote in their lawsuit.

"What makes this case so unique is that Silverton's
board was not composed of ordinary businessmen. Rather, the members of the board
were all CEOs or presidents of other community banks, which was the requirement
to serve on the board."

Price would not comment.

In court filings, the directors denied the FDIC's charges
and said decisions at Silverton were made in good faith.

"With the benefit of 20-20 hindsight, the FDIC now
challenges business decisions made by the Silverton Directors and seeks to hold
them personally liable for losses allegedly incurred after the Bank's
closure," attorneys representing the group said.

"Perfect hindsight vision, however, is not the standard
for judicial review of these decisions."

Silverton was a "banker's bank," which meant other
community institutions around the Southeast were its customers. Silverton
provided these banks with loans, helped them raise money for start-ups and
organized "participations" -- in which one bank made a large loan and
others agreed to fund pieces of it.

Silverton's goal, according to the FDIC's lawsuit, was to
become one of the biggest banker's banks in the country by making loans to
developers far outside Georgia -- from Florida to California.

Silverton gave bonuses to its employees based on the number
of loans they booked, not on how the loans performed. It also set up offices in
fast-growing markets and doubled its size as the economy faltered.

The lender grew from $2 billion in assets in December 2006
to $4.2 billion by March 2009.

In one case, the bank approved a $99 million loan to land
developers who wanted to convert 6,000 acres in Arizona into a sprawling
subdivision.

Silverton made the loan in September 2006, just as Arizona's
housing market began to cool.

Federal regulators said the developers had very little of their
own money in the project. They did not provide all the necessary proof of their
financial situation and the bank did not obtain an updated appraisal until
after the loan was funded.

"This loan is a ticking time bomb," one of
Silverton's directors said at the time it was approved, according to the
lawsuit.

Meanwhile, directors and officers of Silverton spared no
expense in surrounding themselves with luxuries.

They spent nearly $5 million to buy two corporate jets -- one
that belonged to Silverton's chief executive -- in 2007. They approved $3.8
million to start building an airplane hangar, and employed eight pilots to take
executives and their clients around the country, the FDIC said.

In November 2006, they borrowed $35 million to build a new
headquarters with 26 conference rooms in the Buckhead neighborhood of Atlanta.
They called the building "The Medici," and moved in as soon as it was
finished in February 2008 -- even though the bank had 20 months left on the
lease of its former building, according to the FDIC.

Silverton also spent $62,000 every year to host its annual
meeting at the luxurious Cloister resort hotel on Sea Island, Ga., and $4
million from 2002 to 2009 on an annual meeting and banking conference at Amelia
Island's Ritz-Carlton.

Officers, directors and their wives were all flown to and
from these meetings at no charge.

"The cost for this annual board meeting and conference
was incredible, and amply demonstrates the cavalier attitude of the board when
it came to spending the bank's money on luxuries," the FDIC said in its
suit.

Attorneys representing Silverton's directors said the planes
and hangars were required to help the bank expand into 13 states. They said the
bank needed such a large headquarters because it was running out of space.

The directors also said that Silverton took care to vet
borrowers and that regulators consistently gave the bank high marks for
underwriting before the housing market turned.

"The individuals who served on the Board of Directors
were the pillars of the banking community in the Southeastern United
States," attorneys said in court documents. "These Directors took
great pride in the services that Silverton provided to the banking community
and had planned carefully for its further growth and expansion."

4 GUNS AND DEBTSAnthony Dubose sold an insurance company to the bank his father ran, then bought it back a few years later at a $900,000 discount.STAFF PHOTO / THOMAS BENDER

When bankers refused to repay her father $1 million they’d borrowed, Apalachicola resident Daphne Davis threatened to shoot an executive during a confrontation in a grocery store. Her father, Bobby Kirvin, eventually received most of his money back.STAFF PHOTO / THOMAS BENDER

In the Panhandle, A Legacy Of Nepotism And Insider Dealing

PANAMA CITY BEACH -- Bobby Kirvin wanted his money back.

He lent $1 million to the directors of Coastal Community
Bank back in June 2009, at a time when they were desperate for cash to keep the
lender alive.

But when the loan came due a year later, bank executives
refused to pay. They were not returning Kirvin's phone calls, and wouldn't even
give him complete loan documents.

So Kirvin's daughter got her gun.

Daphne Davis invited a top bank executive to her office at the Piggly
Wiggly grocery in Apalachicola, pulled out a Smith & Wesson .40-caliber
pistol and threatened to shoot him dead.

"I told him my face would be the last one he would see if
he didn't get Daddy that paperwork," Davis said.

The documents came 20 minutes later. The bank's directors
ultimately repaid most of Kirvin's money.

Other investors -- and the American financial system --
weren't so lucky.

Coastal Community, which failed in July 2010, was a bank
rife with nepotism, mismanagement and lucrative insider deals that benefited
top executives, their families and their friends, a Herald-Tribune
investigation found.

The newspaper's examination shows how bank leaders used
deposits insured by the federal government to fund risky deals that enriched
themselves -- even when those deals were harmful to the bank and ultimately led
to its collapse.

No one has been accused of any crimes.

During his eight years as president and chief executive,
Terry Dubose gave jobs to his son, two daughters and both of their husbands. He
had the bank pay $3.4 million for his son's insurance company and later sold it
back at a $900,000 loss.

Anthony Dubose, a former director of Coastal Community Bank, would not answer questions from a reporter about why the Panhandle lender failed.STAFF PHOTO / THOMAS BENDER

He bought another Panhandle bank in 2007 and immediately
drove up personnel expenses by more than $200,000 without hiring a single new
employee. He also increased dividend payments to stockholders, including
himself, by $5 million in less than two years.

In 2009, Coastal Community took $10,000 from a customer's
loan account and gave it to one of Dubose's friends. After a fire destroyed a
bank branch that same year, $310,000 went missing from an insurance payment.

Meanwhile, Coastal Community made more loans to its
executives and directors than all but five of the 68 banks that failed in
Florida during the Great Recession. Dubose's children received at least 25
loans for more than $9 million. Officers and members of the board received 53
loans totaling about $24 million.

Of those loans, three ended in default and cost the bank a
total of $1.5 million.

In a separate transaction, director Steve Counts, a real
estate broker, was allowed to buy 23 foreclosed properties from the bank at a
50 percent discount.

In another insider deal, Dubose and two bank officials
bought three bank branches and leased them back to Coastal Community when the
economy was still strong.

But when the housing bubble burst, Dubose and his partners sold
the branches back to Coastal for $5.3 million -- just when the bank needed that
money to remain open.

Coastal Community failed the following year.

The Herald-Tribune examined previously confidential bank
reports and conducted a computer analysis of more than 5,500 mortgages and
foreclosures for this story. Reporters visited Bay, Gulf and Franklin counties
and spoke with 20 former executives, directors, employees, customers and
banking experts.

Dubose did not return repeated phone calls, nor did most of
Coastal Community's directors.

Johnny Patronis, a restaurateur and the brother of state
Rep. Jimmy Patronis, was a director who said he and others lost millions when
Coastal sank. He blamed the global economic collapse for the bank's demise, not
the actions of the lender's leaders.

"When the market busted, everybody went down,"
Patronis said. "There were too many people allowed in the real estate
game, people allowed to take out loans with no money down. They had no skin in
the game, that caused a bubble and the bubble eventually burst. I don't think
community banks were at fault."

If anything, Dubose thought the government owed him money.

In December 2010, he sued the FDIC demanding $71,000 in
yearly pension benefits and the return of his Rolodex, his signature stamp, a
6-foot marlin wall decoration carved from mahogany and a small table belonging
to his wife.

A judge dismissed part of the case and the parties settled
out of court.

Panhandle prominence

For more than 30 years, Dubose was a success at building and
selling banks.

Originally from Alabama, he was a lineman on the Crimson
Tide football team and later went to work for his father-in-law's bank in the
Panhandle town of Marianna.

About 20 miles from the Alabama border, Marianna relies on
farming, timber and county government to support a population of 6,000.

Dubose rose to become president at First National Bank of
Marianna, and he orchestrated its sale to a Birmingham bank, SouthTrust, in
1987.

At that time, banks across the Southeast were expanding into
Florida to profit from the state's growing population.

Dubose stayed on with SouthTrust and ran its Panhandle
operations until 1996. That year, he launched a new bank in Panama City Beach --
the Spring Break Capital of America.

He quickly built Emerald Coast Bank and made it attractive
to outside buyers. In just four years, it amassed $84 million in assets and
Dubose sold it to The Bancorp, another Birmingham institution looking to
benefit from Florida's booming economy.

Once again, the buyers anointed Dubose the head of Panhandle
operations. He earned $235,000 per year, was named vice chairman and set up a
side deal that let him benefit even further, according to documents filed with
the U.S. Securities and Exchange Commission.

Before the sale, Dubose teamed up with powerful developer
Earl Durden to buy three of Emerald Coast's branches. The partners held on to
those branches after the sale to The Bancorp and leased them back to the
Birmingham bank at a 12 percent return on investment.

A century of banking

Apalachicola State Bank had been around for 95 years when
Dubose approached its owners in 2001.

The town for which the bank is named is 75 miles southeast
of Tallahassee on one of the last coastal highways in Florida.

U.S. 98 runs right along the water through places like
Panacea and Carrabelle until it crosses the Apalachicola Bay.

Apalachicola is an oysterman's town, where men work the bay
in small rigs and unload the day's catch at tin-roofed shacks along the shore.

Tiny Apalachicola -- its population is just 2,240 -- produces
10 percent of the oysters consumed in the U.S. each year.

Apalachicola State Bank had been run for generations by
families with ties to the community. Dubose saw it as a quick way to get back in
control of a Panhandle lender.

"It's easier in today's environment to acquire a bank
than to try to start one from scratch and make it profitable," Dubose's
son, Anthony, told a Panhandle business magazine.

Dubose changed the name of the bank to Coastal Community and
built its assets to $360 million by the end of 2008.

On to Port St. Joe

Twenty-three miles west of Apalachicola is Port St. Joe, a
town of 3,600 that sprung up around a paper mill during the Great Depression.
The mill closed in 1998 as its owner, the St. Joe Co., turned to real estate
instead of paper.

Bayside Savings was a small thrift that was profitable and
efficient when Dubose acquired it in 2007.

It had $84 million in assets, paid a modest dividend and
kept expenses down.

Under Dubose, the bank's management style changed.

Financial reports filed with the FDIC show that the bank
raised dividend payments sixfold, to $2.5 million the first year. Salaries rose
by $228,000 and building expenses by $187,000 -- even though the bank did not
add an employee or expand its office space, according to FDIC and SEC records.

"Terry used the bank just like you would use your
personal credit card," said Greg Johnson, Bayside's former chief
executive, who stayed on for eight months after the acquisition.

Coastal Community Bank CEO Terry Dubose was indicted, along with two others, for stealing $4 million from a federal loan program just two weeks after the Herald-Tribune published its series.The (Panama City) News Herald / Andrew Wardlow

A family affair

Dubose began every board meeting with a prayer. His son once
said, "The order of my priorities should be God, family, my neighbor and
my work."

That sense of family carried over to the bank.

Many members of the Dubose family were on Coastal
Community's payroll at one time or another. Dubose's son, Anthony, and daughter
Brantley Byers worked for the insurance division. Byers' husband, Mike, was a
loan officer. Another daughter, Elizabeth Falke, oversaw marketing and online
banking. Falke's husband, Heinz, regularly did appraisals for bank loans.

In addition to jobs, Coastal Community was generous with
depositors' money. Only five of Florida's 68 failed banks lent more in total
dollars to insiders.

Insider loans are not illegal, but experts say they raise
conflict-of-interest questions.

Mortgage records show that Michael and Brantley Byers
received three loans totaling $915,000 between 2002 and 2010. Michael Byers
defaulted on a $37,000 loan, according to Bay County court documents.

The Falkes received six loans totaling $1.6 million. Those
loans were repaid.

Anthony Dubose and companies he controlled received 16 loans
totaling $6.7 million. Each was repaid.

Family members were not the only ones to benefit.

Steve Counts and his companies received eight loans totaling
$6.5 million. James Holsombake and his companies received 17 loans totaling
$2.8 million and Michael Bennett received two loans totaling $2.35 million.
Those loans were ultimately repaid.

Troy Campbell, the executive vice president, received two
loans totaling $1.1 million. He defaulted on both.

Insider dealing

Of all the insider deals, three in particular show how far
the bank went to reward its executives.

In these cases, the bank lost while its leaders gained. They
involved the sale of branches to a company run by Dubose and two other bank
officials; the purchase of an insurance company controlled by Dubose's son; and
the sale of foreclosed properties at a discount to a director.

The
branches: In January 2006, the bank sold three branches to a company controlled
by Dubose and two other insiders -- Campbell, the executive vice president, and
attorney Frank A. Baker -- for $5.8 million.

Mortgage records show the group financed the purchase with a
$5.3 million loan from an outside lender and leased the branches back to
Coastal Community for an undisclosed sum.

County tax collector records show the branches in Panama
City Beach, Port St. Joe and Lynn Haven were worth $3.2 million at the time of
the sale.

In the short term, the deal appeared beneficial to the bank
because it sold the branches for much more than they were worth. But in the
long term, the transaction hurt Coastal Community.

By July 2009, the real estate market was detoriorating fast and
properties across Florida were sinking in value. So Dubose and his partners
wanted to get rid of the branches -- and found a buyer in their own bank.

Coastal Community paid off the group's original $5.3 million loan
and took back the branches.

The sale could not have come at a worse time.

Earlier that year, regulators examined the bank and
concluded that it had not set aside enough money to cover its bad loans. Over
the ensuing months, Coastal Community had to reduce its precious capital
cushion by $17 million.

Having to pay an additional $5.3 million to buy bank
branches simply reduced the bank's capital cushion even further.

"At that point the bank didn't need $5 million in extra
branches," said Richard Newsom, a retired California bank and thrift
regulator. "Usually what you're trying to do when things get desperate is
sell fixed assets, not buy them."

The
insurance company: Coastal Community decided in 2007 to branch out beyond
banking.

That year, the bank's holding company bought an insurance
company that belonged to Dubose's son, Anthony, for $3.4 million.

In March 2010, it sold the company back to Anthony -- at a
$900,000 loss. The bank gave Anthony Dubose a $2.5 million loan to complete the
purchase and regulators sharply criticized the deal.

State officials obtained board minutes from February 2010
that showed how the purchase price was not based on the actual value of the
insurance company, but on the bank's need for additional capital.

During their May 2010 examination, regulators determined
that the deal broke federal law, as well as the bank's own internal policies.

No appraisal had been done on the insurance company in four
years. The bank provided all the funding for the purchase when it was only
allowed to contribute 70 percent. The loan also exceeded the amount a bank
could give to an insider or affiliate.

Beyond that, regulators thought the insurer was worth just
$1.2 million in 2006 -- long before property values and the economy collapsed in
Florida.

When the deal was finally signed, the terms were more
favorable to Dubose's son than what the board had agreed to.

Instead of having to pay a 7 percent interest rate over 15
years, Dubose's son would only have to pay 5 percent over 20 years.

"That's a blatant example of self-dealing," Newsom
said.

The
foreclosures: Steve Counts is one of the most powerful real estate brokers in
Bay County.

His distinctive "Counts Real Estate Group" signs
line properties along Back Beach Road, 40 miles west of Port St. Joe.

This section of U.S. 98 is much different than the counties
to the east. New developments sprang up during the boom and the road is lined
by strip malls, chain restaurants and new neighborhoods.

Counts played an active role in that development. He built a
shopping mall along Back Beach Road that included Coastal Community's
headquarters and a cluster of houses to the south.

As the economy collapsed in September 2008 -- as Lehman
Brothers went bankrupt and the government took control of Fannie Mae and
Freddie Mac -- Counts made a deal with Coastal Community.

A company he controlled paid $3.2 million for 23 properties
foreclosed on by the bank.

Coastal Community helped finance the purchase by providing
Counts' company with a $2.56 million loan. The deal benefited the bank because
it was able to turn 23 foreclosures into one good loan, but it had to write off
the value of the properties at a loss.

Counts benefited because he got properties ranging from a
waterfront lot on St. George Island to a four-bedroom house just a block back
from the water in Panama City for 50 percent less than the previous owners had
owed on their mortgages -- a good deal, considering that median home prices had
declined by just 25 percent at that time.

Counts did not respond to multiple phone calls and emails
for comment.

Johnny Patronis, the bank director, told the Herald-Tribune
that the deal was "on the table" for anyone. But he did not know what
efforts were made to inform the general public. He said Counts went ahead with
the deal reluctantly to help the bank.

"These represent an unusually large number of insider
transactions in a short period of time," said Robert DeYoung, a business
professor at the University of Kansas, in reference to the three insider deals.
"They are also large compared to the size of the bank. Each one represents
about 1 percent of the bank's total assets."

DeYoung, also a fellow in the FDIC Center for Financial
Research, added that the deals were "unambiguous examples of bad banking
behavior."

Desperate for capital

As the bank's fortunes declined, Coastal became involved
with even more questionable deals.

John Carroll, one of the bank's customers, complained in a
2009 lawsuit that $10,000 was taken out of his loan account and given to one of
Dubose's friends -- James Gortemoller.

"Gortemoller was not current on his loan and the bank
was trying to find a way to funnel money to him," Carroll told the
Herald-Tribune.

Carroll reported the alleged theft to the Bay County Sheriff's
Office and filed a civil suit against the bank. But after the FDIC closed
Coastal, the suit was dismissed.

Gortemoller did not respond to multiple phone calls for
comment.

At about the same time, the bank's holding company received
an insurance payment for $1.21 million to pay for repairs at an Apalachicola
branch.

But only $900,000 of that money found its way to the bank,
according to state regulatory documents.

The remaining $310,000 was simply listed as an account
receivable that the bank never received.

On borrowed funds

With bad loans eating away at the bank's capital, Dubose
scoured the Panhandle for investors willing to prop up his sagging enterprise.

In March 2009, he convinced his board of directors to set up
a separate company and borrow $2.5 million from the Bank of Bonifay, another
Panhandle institution that failed during the recession.

The directors personally guaranteed the loan, regulatory
reports show. But they did not reach into their own pockets to make interest
payments. They borrowed $100,000 from Coastal Community to cover those costs.

Regulators pointed out that borrowing the $100,000 was
illegal because banks are not allowed to provide unsecured loans of more than
$25,000 to affiliated parties.

Three months later, Dubose approached one of the bank's
biggest depositors for more help.

: Bobby Kirvin, the biggest depositor at Coastal Community Bank, lent its directors $1 million when it fell on hard times. He later sued – and his daughter threatened an executive with a gun – to get his money back.STAFF PHOTO / THOMAS BENDER

Bobby Kirvin made a small fortune selling land in
Mississippi to casino companies at the beginning of his career. He felt
comfortable with Coastal Community because his niece's husband worked there and
he had $4 million in its vaults.

So Kirvin lent $1 million to a company controlled by 12 of
the bank's directors in June 2009. The directors personally guaranteed the
note.

Kirvin said he was supposed to be repaid in one year, but documents
he was handed at closing provided for repayment in three.

"I called Dubose and he said, 'Just mark through it and
put one year,'" Kirvin said. "He did that even though all the
documents had already been signed by the other directors."

Kirvin said that Dubose later handed him an incomplete set
of closing documents.

"He said, 'These are the originals,' and I trusted
him," Kirvin said.

When it came time to get his money back in June 2010, Kirvin
discovered that Dubose never told his board that he had unilaterally changed
the terms of the loan, according to a lawsuit.

Kirvin also realized that he did not have a complete set of
original loan documents, which he needed to prove he was owed the money.

Kirvin said he asked his niece's husband, a top executive at
the bank, to get him the original documents. But Marcus Edenfield told Kirvin
that the bank did not have them.

After Kirvin's daughter got her gun and threatened the bank
executive, Edenfield quickly changed his message.

"He cried. He broke down and wailed like a little
baby," Kirvin said.

He also produced the paperwork, enabling Kirvin to sue
Dubose and 11 fellow directors. Edenfield would not comment.

Ultimately, all but two of the directors agreed to pay him
back. The two who did not were Dubose and his son, Anthony.

Kirvin says it was Dubose who failed to hand him the correct
paperwork, and it was Dubose who failed to let his fellow directors know about
the risk they were taking when they borrowed money to keep the bank afloat.

"My lawyer said he could have gotten some of the other
directors to pay more than their share to make up the difference," Kirvin
said. "I didn't want that. I wanted DuBose and his chickens--t son to pay
me what they owed."

5 FRONT ROW SEATSGerry Anthony was warned by regulators to grow slowly when he started Freedom Bank back in May of 2005. He ignored those warnings and expanded Freedom so quickly that it became burdened by bad loans.HERALD-TRIBUNE ARCHIVE / 2003Steve Atwater is the stateâ€™s chief financial officer and was an executive at Riverside National from 2002 to February 2009. Regulators closed Riverside in April 2010.STATE OF FLORIDA

Directors received more than $100 million in loans and
earned many millions more by contracting with the chain of three banks to lease
branches, provide architectural advice and oversee computer systems.

When state regulators asked for proof that deals with
insiders were good for the bank and not just good for directors, they were met
with delay, resistance and deception.

Regulators found that executives twice filled out
questionnaires with erroneous information and were unable to produce key
documents showing deals had been properly vetted, leading them to conclude that
Bank of Florida was breaking the law.

Bank leaders say they may have been slow to produce
documents but ultimately complied with all requests.

Instead of punishing Bank of Florida executives, examiners
gave them high marks for overall management.

Regulators saw wrongdoing and defiance such as this at other
banks across Florida in the years before the financial crisis but did little to
stop it. Only two of Florida's failed banks were hit with serious enforcement
actions in 2006 and 90 percent were given high marks.

But as soon as the real estate market soured and banks began
reporting losses, regulators got tough. They issued 13 enforcement actions in
2008 and downgraded more than half of Florida's failed banks.

By then it was too late.

Sixty-eight banks failed during the last five years and a
Herald-Tribune investigation found that more than half of them repeatedly broke
rules and regulations meant to protect them.

Most of those rules were common-sense guidelines to keep
bankers from hurting themselves.

For example, banks have to make sure they have enough money
on hand to cover losses. They are supposed to know a borrower's financial history
to determine if he or she can repay. They must adhere to caps on how much money
they can loan to each borrower and they are warned not to use too much
depositor money to fund the riskiest kind of loans.

Banks also have to get appraisals on property and are
supposed to avoid deals that are overly generous to directors and executives.

During the last decade, bankers often broke these rules and
examiners watched them do it.

"They had front-row seats," said Raymond Vickers,
a former state regulator and economic historian. "They knew what was going
on and they allowed it to happen."

The result was the most serious economic downturn since the
Great Depression.

The Federal Deposit Insurance Corp., which protects
customers' money when a bank fails, concluded in 2011 that regulators need to
act earlier in an economic cycle and take a harder stance against wayward banks
to avoid similar calamities in the future.

The U.S. Congress passed sweeping reforms that make banks
raise more capital to protect against losses and force executives to rely on
data, instead of personal relationships, when they lend money.

In Florida, though, the agency that oversees banks seems to
be moving in the opposite direction.

Ten percent of bank examiners at the Office of Financial
Regulation have been let go since the peak. Half the offices have been closed.
Senior employees have been encouraged to leave the agency. Its
second-in-command -- a Naples chiropractor and real estate investor who plays
golf with the governor -- cannot take over the top spot because he doesn't have
the appropriate license.

Meanwhile, the state's top regulator does not believe that
getting tough on bankers is the right approach. He says "more effective,
more business-friendly regulation" is the answer.

Critics disagree.

"What we need now is not less oversight," said
Benton Eisenbach, a former regulator who oversaw the Tampa Bay region before
retiring last year.

"We need to step up and be more hard-nosed than we have
been."

Congress passed strict new bank regulations following the Great Depression. Since the 1970s, concessions by lawmakers have eased many of those same restrictions.ASSOCIATED PRESS

A history of failures

Failure is part of the American banker's DNA.

In the 1880s, before there was any type of modern banking
regulation, land, commodity and stock market booms preceded waves of bank
failures every 15 to 20 years.

That trend continued until the Great Depression, when 270
Florida banks and thousands more across the country were shut down.

Looking to prevent a similar crisis, Congress enacted a
series of laws. These included insurance to protect depositors and the separation
of banking from other financial services to reduce risk-taking on the part of
banks.

Relatively few banks failed over the next 40 years. But
Depression-era regulations were by no means perfect and got in the way amid the high inflation of the 1970s.

President Ronald Reagan ushered in a new era with laws
allowing savings and loans to charge higher rates to borrowers and to make
riskier loans to developers and speculators.

But regulators stumbled.

Banks and thrifts received fewer exams and excesses went
unchecked -- leading to the savings and loan crisis of the late 1980s and
early 1990s.

Ninety Florida banks failed during this period and studies
from that time reveal that the principal cause was misconduct by bankers and
acquiescence by regulators.

Experts concluded that government needed to clamp down on
bankers going forward, but that did not happen.

Under President Bill Clinton, the trend toward deregulation
continued. Key restrictions were lifted -- among them, a provision of a decades-old
rule that prohibited banks from operating other businesses, like insurance or
stock brokerages -- and regulators were told to stop being so confrontational.

"Business owners are sick of being treated like
criminals," said Vice President Al Gore, who was charged with streamlining
government regulations.

His solution: Treat bankers more like customers.

Beginning in 2002, the FDIC implemented its
"MERIT" program, which led to shorter, less-intrusive exams.

Through 2007, about 40 percent of all bank exams were
conducted in the MERIT program, according to the FDIC. Among those that
participated were seven of the 68 banks that failed in Florida.

The program ended in 2008 after examiners complained it
stripped them of their authority to investigate banks properly.

"A whole generation of regulators was trained under
this program," said Dick Newsom, who served as an FDIC regulator for 17
years. "They were told not to make a nuisance of themselves, to do
superficial reviews and do them quickly.

"The idea was to create a kinder, gentler regulatory
atmosphere."

Ignoring the regulators

Bankers seized on this "kinder, gentler"
environment as an opportunity to dismiss regulatory concerns.

At Riverside National Bank in Fort Pierce, executives
ignored regulators who told them to keep better track of $24 million in insider
loans. And when examiners asked about transactions with affiliate companies,
the bank refused to turn over information about these deals and told regulators
it was "confidential."

At Marco Community Bank in Collier County, regulators warned
that it was breaking the law by investing too much money in a company that
funded the rehabilitation of low-income housing. Instead of cutting back, Marco
Community increased its investments -- costing the bank millions when borrowers
defaulted.

And at Freedom Bank in Bradenton, regulators told Gerry
Anthony to grow slowly when he opened shop in May 2005.

Anthony had been forced out of two other banks for
aggressive growth and risky lending. State regulators wanted to prevent that
from happening again. But Anthony did not listen.

He grew Freedom to be the biggest bank in Manatee County in
less than three years and regulators say he and members of his board became
"argumentative" when management was blamed for an increase in bad
loans.

Regulators have a range of punishments they can use to make
bankers follow rules. The strongest is a cease-and-desist order that forces
banks to comply with regulatory orders or face the prospect of being closed.

With regard to Freedom, Marco Community and Riverside National,
the FDIC found that regulators did not take strong action fast enough.

"Regulators felt their hands were tied a little when
banks were showing record profits," said Bruce Kuhse, the former general
counsel for the Florida Office of Federal Regulation. "They couldn't go to
court and get a cease-and-desist order when times were good.

Bruce Kuhse is a former attorney for the state agency that oversees banks. He says he was forced out by new managers and believes Florida is moving in the direction of further deregulation.STAFF PHOTO / THOMAS BENDER

"Banks would have told the administrative law judge:
'We know what we're doing. We're making lots of money. Leave us alone.'"

Delay and take time

Executives at the Bank of Florida were especially brazen
about rebuffing regulator requests for information about insider deals.

Though not illegal, experts say such deals can signal a
conflict of interest and lead to concerns about whether executives are putting
their own priorities above those of the bank. A Naples attorney who was also a
Bank of Florida director says all of the insider deals were handled properly.

Documents filed with the U.S. Securities and Exchange
Commission show a company controlled by director Ramon Rodriguez received $6.2
million for providing computer network support to the chain of banks.

Companies run by Terry Stiles, another director, earned $4.4
million for leasing out space in buildings to Bank of Florida-Southeast, while
a company managed by Donald Barber and two other directors garnered $4.8
million by leasing office space to Bank of Florida-Southwest.

In the deal with Barber and his partners, the bank started
leasing headquarters space in Naples for $34,000 per month in 2002. But four
years later, the price skyrocketed to $94,000 per month and state officials
wanted to know whether the bank was overpaying.

They asked bank executives to provide proof that the lease
was based on market rates, but executives were slow in responding. The matter
was finally settled when directors sold the building to an outside buyer in
April 2008.

"Management was unable to provide any written analyses
indicating that the various business transactions with insiders were reasonable
to the bank and on terms no more favorable than would be offered to a
disinterested third party," regulators wrote in 2006.

Regulators also noted that executives twice withheld
information when filling out questionnaires about insider deals.

"In 2004, examiners were not aware of the transactions
because management failed to disclose them in its response to the officer's
questionnaire," regulators wrote in their 2006 report. "At this exam,
the officer's questionnaire was also erroneously completed and had to be
corrected after the exam began."

Joe Cox, a Naples attorney and former board member, said
insider deals were properly vetted. He said executives tried to get regulators
the information they wanted and ultimately succeeded.

"You can delay and take time," Cox said.
"Sometimes there's miscommunication. But they don't let go. They get your
attention and they keep coming back."

'Chickened out'

Nowhere is the timidity of regulators better exemplified than
in a 2006 showdown over loans to commercial real estate developers.

This type of loan is among the riskiest a bank can make.
There is a lot of money on the line -- millions of dollars to build shopping
malls, office buildings and the like. Banks are betting that developers will
finish the job and that small businesses will lease or buy the empty space.

Though risky, commercial loans are lucrative. So Florida's
community banks became steeped in them and regulators grew worried.

"These loans always crash and burn in a downturn,"
said Newsom, the former FDIC regulator. "They always do."

The FDIC saw the number of development loans growing to
dangerous levels nationwide and tried to put a stop the trend. In early 2006,
the agency proposed a rule that would limit how much banks could lend to
commercial developers.

The proposed cap meant that if a bank had $10 million in
capital, which is basically the cash on hand to protect against problems, it
should lend out no more than $10 million to commercial developers.

The Florida Bankers Association lobbied hard against the
restrictions, believing the halt in lending would cause the bottom to fall out
of the real estate market. Most Florida banks already far exceeded the proposed
limits and the new rules signified they would not be able to make fresh loans.

Together with similar organizations around the country, the
FBA poured all its resources into getting the FDIC to back off.

"The FDIC chickened out from doing anything
meaningful," Newsom said. "They watered down the policy so that it
was nothing more than guidance. There was no consequence for not doing
it."

The result was that banks continued to load up on risky
development loans even as the real estate market began to falter. In fact, many
Florida banks made their largest and worst loans during this period, making the
ensuing crisis much worse.

Even the bank lobby now acknowledges it was a mistake to
allow commercial real estate lending to continue unfettered.

"Given the benefit of hindsight, it was probably a bad
decision," said Alex Sanchez, head of the Florida Bankers Association.
"We just didn't think the one-size-fits-all approach of the FDIC was the
answer."

Continued deregulation

Bankers give millions to fund the campaigns of political
candidates in Florida and beyond.

An analysis of campaign records shows that Florida bank
executives, board members and trade groups have donated nearly $9 million to
state and federal campaigns since 2000.

This largess allowed bankers to win concessions from
Florida lawmakers such a law this year that allows banks to speed up the
foreclosure process and get struggling property owners out of homes faster.

Also, some of Florida's top financial watchdogs are bankers
themselves. Its chief financial officer, Jeff Atwater, spent 25 years in
community banking while its top regulator, Drew Breakspear, was tapped after
four decades as an international banker and consultant.

Given the background of Florida's top government officials
and so much support from the bank lobby, it should be no surprise that
Tallahassee lawmakers rarely take a hard line against the industry.

Unlike the FDIC, the Florida Office of Financial Regulation
has not undertaken a study to determine the causes and consequences of the 68
bank failures since 2008. And Breakspear believes it is average Americans
"who were out of their league in terms of their spending habits" that
caused the financial crisis rather than mismanagement and poor decision making
by bank executives.

"Clearly you had government pushing to increase
homeownership and there was a lot of pressure that resulted in some people who
probably should not have been getting loans," Breakspear said. "As
the economy turned down, they were incapable of paying."

A former banker himself, Breakspear acknowledges the need to
move quickly against defiant bankers but says the cuts to regulatory staff were
justified considering there are 20 percent fewer banks to regulate.

He added that he has strengthened his agency by upgrading
computer systems, developing a succession plan and replacing former employees
with those who have a combined 200 years of experience.

But in an interview with the Herald-Tribune, Breakspear
bridled at the thought of getting tougher on bankers, saying that we live in a
free enterprise environment and that "financial regulators must change so
they do not stand in the way of banks."

That means Florida will continue down the path of
deregulation, and critics worry that this leaves the state vulnerable to
another banking crisis in the future.

They say the 10 percent reduction in banking division staff
and the loss of nearly half of the OFR's top 23 administrators in the past 12
months has greatly weakened the agency at a time when it should be
strengthened.

The No. 2 person in the organization is now Greg Hila, the
Naples chiropractor and personal friend of the governor. Hila is not able to
fill in for the agency's leader because he does not hold a stock broker's
license. But Breakspear defended Hila, saying "he brings vast private-sector business management experience to the OFR" and has improved
finances "through visionary budget management."

Critics say Breakspear is following a path laid out by his
predecessor, Tom Grady.

"Grady came in with preconceived notions that the OFR
was overstaffed," said Kuhse, the OFR's former general counsel. "His
goal was to cut a certain number or regulations and a certain percent of
personnel to meet commitments to the governor, and he did that.

"He posted his initiatives right off the bat and did
not take kindly to pushback. The new commissioner -- Drew Breakspear -- is
continuing that trend today."

The result has been "a serious brain drain" at the
OFR, said Linda Charity, a 33-year veteran of the agency and former interim
director.

"If you look at the organizational chart, it's
completely changed from a year and a half ago," she said.

Missing from that chart are Charity and Kuhse, who said they
were fired soon after Breakspear took charge.

Breakspear says the longtime employees left voluntarily. But Kuhse says that is not true.

“The choice was either be terminated immediately,” Kuhse said, “or sign the prepared resignation letter and be able to use two weeks of accumulated leave. I think you could properly describe the departures as forced resignations.”

To Kuhse, the decision to oust veterans such as himself reflects the agency’s growing appetite to replace hard-nosed state officials with those more amenable to the banking industry’s needs.

“I don’t know what will happen to the agency now,” Kuhse said. “If the goal is to continue to downsize, I don’t think that’s good. Without senior officials, historical lessons will be lost.”

His companies defaulted
on more than $300 million in loans and contributed to the failure of six banks
across the country during the Great Recession â€” including three in Southwest
Florida.

The son of a janitor,
Bovino rose to become chairman of his own bank and a prominent New Jersey
developer with two dozen multimillion-dollar projects under his belt.

Business associates say
he prided himself on being a family man. He once told The New York Times that
he watched only G-rated movies and had fired people for swearing in the
workplace.

But his squeaky-clean
exterior did not stop him from using strong-arm tactics â€” hiring a disbarred
attorney with ties to organized crime â€” to get what he wanted in the combative
world of New Jersey development. When the economy slid into recession, former
associates say Bovino diverted bank funds meant to pay subcontractors, and
regulatory documents and a government lawsuit show he participated in
"improper" deals that broke bank policies, hiding the fact that he
was no longer current on his loans.

Bovino, 71, is not
accused of any crimes.

The developer did not
return three calls left on his answering machine or a handwritten message left
in the mailbox outside his house â€” red brick with white columns â€” in Ho-Ho-Kus,
N.J.

Builder James Bovino started his career as a school teacher and rose to become a builder with projects across the country. He now lives in this home in Ho-Ho-Kus, N.J.Staff Photo / Michael Braga

Bovino's rise and fall
provide a glimpse into how developers and bankers walked hand-in-hand during
the real estate boom, and how they stopped playing by the rules even before the
crisis hit.

In the end, developers
like Bovino not only contributed to the failure of 69 banks in Florida and
hundreds more across the country â€” their actions hurt ordinary workers and
small businesses.

In Bovino's case, at least
120 building contractors and subcontractors say they were left with more than
$13 million in unpaid bills, court records from six states show.

"Getting to the
end in 2008, there is collusion between bankers and their customers," said
Dick Newsom, who served as a regulator with the Federal Deposit Insurance Corp.
for 17 years. "Borrowers knew banks were desperate to hide bad loans, and
banks understood that developers would lie, cheat and steal â€” and do whatever
they had to â€” to survive."

The Herald-Tribune
began investigating Bovino and his businesses during its yearlong inquiry into
failed Florida banks.

Regulatory documents,
bankruptcy records, civil filings and interviews with 15 people show that
lenders ignored warning signs and funneled money to his companies even after
the recession took hold.

Among the findings:

• Bradenton's Freedom
Bank did not look at Bovino's total debts before lending one of his companies
$7.5 million in March 2007.

• Sarasota's Century
Bank lent another Bovino company $900,000 in 2008 to cover unpaid interest and
bounced checks.

• Cape Fear Bank in
North Carolina broke laws and regulations when it provided a third Bovino
company with $2.7 million in May 2008.

• Englewood's Peninsula
Bank signed off on a $12.1 million loan to another Bovino company as the world
economy was melting down in October 2008. The purpose of this loan, according
to regulatory reports, was to help Peninsula get 200 acres of repossessed land
off its books. Regulators called it an "improper sale," and analysts
say the deal was meant to trick regulators into thinking the bank's capital
stockpiles were deeper than they actually were.

But Bovino's story does
not end with failed banks and unpaid loans. For the past two years, he has been
scrambling to rebuild his real estate empire by repurchasing foreclosed
properties at a discount.

In North Carolina, a
company controlled by one of Bovino's associates bought 121 lots in a large
housing project outside Wilmington. In Florida, a company managed by another associate
bought two unfinished town homes and 11 vacant lots in Bradenton's Palma Sola
neighborhood.

Shay Hawkinberry, a
Sarasota real estate agent and interior decorator, said Bovino raised $1.1
million from a New York City investment firm to buy town homes in Florida and
start fixing them up. But she said Bovino diverted some of the money to one of
his projects in New Jersey.

Though Bovino's
investors say he had permission to use the money as he saw fit, Hawkinberry
said the diversion meant Bovino did not have enough left to pay nearly $40,000
to her and a flooring contractor.

"He told me to
find a bank that would lend him money, because that would be the only way I
would get paid," Hawkinberry said.

She introduced a Bovino
associate to three local lenders, and each turned him down.

"I did everything
I could," one of the mortgage brokers wrote in an email to Hawkinberry.
"But when you have partial tax returns, bank statements missing pages, no
idea what mortgages go to what property, it is really hard to get a loan
approved."

From the bottom up

Before he became a
multimillionaire, Bovino was a schoolteacher.

He began dabbling in
real estate in the 1970s, buying and building homes and apartments in his spare
time.

By the 1980s, he had
become a full-time developer, accumulating at least 11 apartment buildings and
three office structures in northern New Jersey by the decade's end.

James Bovnio built this office building in Woodcliff Lake, N.J., to serve as his company headquarters until late 2008.Staff Photo / Michael Braga

Friends and business
associates say Bovino fought to overcome polio as a child, which stunted his
growth. But what he lacked in height, he made up for in tenacity.

Bovino also had a gift
for relating to people at every level. That helped him on worksites, where he
interacted easily with construction workers, and in planning board meetings,
where he was able to charm public officials and concerned citizens.

It also helped when it
came to raising money from bankers and winning favor from politicians. In 1991,
New Jersey Gov. Jim Florio appointed him to the state's Bank Advisory Board.

But there was another
side to Bovino.

Creditors say he was
slow to pay his bills. In one well-publicized instance, he reneged on paying a
multimillion-dollar commission to Dennis Sammarone, the former chef for hotel
heiress Leona Helmsley.

Bovino was trying to
buy a vacant 16-acre tract in New Jersey near the George Washington Bridge that
was owned by the Helmsley family. But Helmsley, dubbed the "Queen of
Mean" by the press, would not return his phone calls. So he asked
Sammarone to intervene and the chef opened the door for Bovino to complete a
$46.3 million purchase in 2003.

When Sammarone did not
get the commission he was promised, he sued Bovino and eventually won a $13.9
million judgment.

Robert Cohen, who won a
$2.3 million judgment after Bovino did not fully pay for the purchase of a New
York stock trading firm, said Bovino had a motto: "Don't pay anyone until
they ask you three times."

"He was supposed
to give me $1.5 million upfront, but I don't believe he gave me half that
amount, and I had to twist his arm for the rest," Cohen said. "After
I won my suit, I talked to him about a settlement. He'd say a number. I'd say
OK. Then I'd never see the money."

One of Bovino's former
Florida executives, who asked to remain anonymous, was more succinct:

"If Jimmy owed you
$1,000, he'd tell you he'd pay you. But that might be in 10 years from now â€”
and that was OK with him."

Calling on Rigolosi

Newspaper reports and
lawsuits show that Bovino also had a tough side that he displayed when
competing developers threatened his turf, or when reluctant lawyers, planning
commissioners, judges and politicians needed persuading.

Robert Fraser stood to
make a large commission from the sale of land to a young developer who was
trying to build a New Jersey apartment complex in 1989. But when Bovino blocked
that purchase, Fraser sued.

He accused Bovino of
hiring an attorney to tie up planning board meetings and slow the developer's
efforts to secure approvals.

When that did not work,
Fraser said Bovino offered the developer $200,000 to abandon the project.

Unsuccessful once
again, Bovino turned to Vincent Rigolosi, a disbarred attorney with ties to the
powerful Genovese crime family.

Rigolosi was indicted
in 1981 and accused of helping Mafia crime boss "Cockeye Phil"
Lombardo bribe a police officer who was Maced outside a Jersey Shore restaurant
by Lombardo's son.

A jury later found
Rigolosi not guilty, but the New Jersey Bar Association stripped him of his law
license five years later. An opinion letter drafted by the the state Supreme
Court said that Rigolosi "actively participated in a criminal
conspiracy," and that his "conduct reveals a flaw running so deep
that he can never again be permitted to practice law."

Despite Rigolosi's
well-publicized history, Bovino repeatedly asked the ex-lawyer to help him work
out intractable problems over the years. Rigolosi â€” a former mayor of Garfield,
N.J., and Democratic Party chairman for Bergen County â€” had useful connections.

Indeed he was so
powerful, Fraser said, that he persuaded Fraser's first attorney to quit.

"Rigolosi calls my
attorney and tells him this is a B.S. lawsuit," Fraser said. "He
said: 'These young kids don't know what they're doing' and my attorney got
scared off. He tried to tell me to drop the case."

Fraser hired a new
attorney, who was also approached by Rigolosi. But this time, the lawyer kept
fighting for six and a half years.

The case was finally
dismissed when the state Supreme Court ruled that Bovino, who owned a parcel
adjacent to Fraser's, had reason to try to block the development.

A decade later, The
Record of Hackensack reported that Rigolosi was still working for Bovino. A
prominent fundraiser for Sen. Frank Lautenberg, Rigolosi convinced the senator
to visit Bovino's $1 billion development near the George Washington Bridge in
late 2007, the newspaper said.

But even Lautenberg,
who is now deceased, could not help that failed project get off the ground.

Coast to coast

Bovino was luckier
after the savings and loan crisis of the late 1980s and early 1990s.

He survived with his
New Jersey real estate holdings largely intact, and by 1998 was ready to expand
across the country.

His first stop was
Wilmington, N.C., where he began developing housing projects in and around the
coastal city. Then it was on to Arizona and Florida in the early 2000s and
Georgia and New York by the middle of the decade.

At the peak, Bovino's
companies were building homes in the suburbs of Phoenix and Atlanta, apartments
in Raleigh, N.C., town homes in Palmetto and upscale condos in Port Chester,
N.Y.

James Bovino built this suburban housing development near Atlanta.Staff Photo / Michael Braga

Bovino also launched
Citizens Community Bank in Ridgewood, N.J., in November 2004. One of his
companies purchased an institutional trading firm the following year that
bought and sold stocks and bonds on the New York Stock Exchange, and he laid
out plans for building a 47-story skyscraper overlooking the Hudson River in
Fort Lee, N.J.

"Jimmy's biggest
downfall was that he had an opportunity to expand quickly â€” so he did,"
said Greg Cagle, a Georgia developer who helped Bovino buy a housing
development in the Atlanta suburbs. "He expanded too quickly and ended up
being spread too thin."

Smoke and mirrors

Bovino was always
meticulously dressed.

A former employee said
he would never wear a suit more than once before having it dry cleaned; his
shoes were regularly sent off for polishing at Saks Fifth Avenue in New York.

He maintained swanky
offices on Park Avenue, and even his flagship company's name â€” Whiteweld
Barrister & Brown â€” was meant to project an air of Old-World affluence.

But the names were all
made up.

A former employee said
Bovino chose Whiteweld because his father worked as a janitor for White Weld
& Co., a prestigious Boston-based global financial firm that can trace its
history back to the 1630s. The other two names were tacked on because they
sounded good together, the former employee said.

To further add to his
cachet, Bovino started a charity called The Whiteweld Foundation to benefit
children. It put on half-dozen concerts at Lincoln Center and Carnegie Hall
during the real estate boom with headliners that included Gladys Knight, Chuck
Mangione, Burt Bacharach and the Count Basie Orchestra.

James Bovino, center, established The Whiteweld Foundation and often threw charity galas at Carnegie Hall and Lincoln Center in Manhattan. Bovino is seen on the foundationâ€™s Web site with Polish President Lech Kaczynski.whiteweldfoundation.org

"It was all smoke
and mirrors, really," said Cohen, who sued Bovino after the New Jersey
developer failed to pay him fully for his New York investment firm. "The
guy was leveraged out the wazoo."

But bankers were
impressed by Bovino, and he had few problems borrowing when the economy was
strong.

In Georgia and North
Carolina, Regions Bank became one his major backers. In Florida, Bank of
America lent him more than $7 million to build town homes in Palmetto.

By 2006, however, big
banks were reluctant to keep fueling Bovino's insatiable demand for money.

Community banks stepped
into the void.

A former Century Bank
executive, who asked not to be named because of a new job she has secured, said
Century president John O'Neil was seduced by the fact that Bovino was the
chairman of his own New Jersey bank and had served on a state bank advisory
committee. O'Neil greenlit approvals for one of Bovino's companies to borrow $9
million in October 2006 to buy 274 acres in Manatee County.

"When the
president says, 'We're going to do business with this guy,' you don't look for
stuff that says we can't do this," the former Century executive said.

She said Century was
trying to increase its loan portfolio and ensure bonuses for top executives at
the time. "People do stupid things to meet their goals," she said.

O'Neil did not return
a call and an email message to his Fort Lauderdale attorney.

Peninsula lent one of
his companies $2 million in May 2007 to develop town houses on the Hillsborough
River, while Freedom failed to properly analyze Bovino's finances when it
allowed one of his companies to borrow $7.5 million to pay off an existing
loan.

A former Freedom loan
officer, who also asked not to be mentioned by name because he is still
employed in the banking industry, said executives did not try to count up
Bovino's outstanding debts across the country before lending him money. They
merely ordered an appraisal and evaluated the loan based on what they felt the
collateral was worth.

Banking experts and
former regulators say that was a big mistake.

The FDIC warned banks a
year earlier to cut back on making speculative real estate loans to developers.
Regulators also made it clear that bankers needed to complete a global
financial analysis of a borrowers debts before extending money.

"With developers,
you have to do a really good job of identifying contingent liabilities,"
said Newsom, the former FDIC regulator. "Nearly every greedy banker looks
only at the project and ignores the other debts a developer might have."

'... regret what you
said'

A few months after
receiving loans from Freedom and Peninsula, Bovino's operations ran into
trouble across the country.

Speculator-driven
demand for housing in Arizona, Georgia and Florida started sliding in late 2006
and prices plummeted the following year.

One of Bovino's former
managers in Georgia said Bovino's development began losing money in 2007
because of high construction costs in the mountainous terrain outside Atlanta.

In Manatee County, one
of Bovino's companies was having so much trouble selling town homes at Oak
Trail that he had to take out personal loans and buy six of the units himself
to pay down some of what his company owed to Bank of America, court records
show.

James Bovino sold four units in a Palmetto subdivision to his employees and another six units to himself after he couldnâ€™t find other buyers.Staff Photo / Michael Braga

In New Jersey, he was
facing the lawsuit from Leona Helmsley's former chef and the Environmental
Protection Agency fined one of his companies $600,000 for failing to get
permits before installing a sewer system at one of his developments, court
records show.

About the same time,
The Record ran a front-page story in December 2007, about how Bovino's $1
billion development by the George Washington Bridge was dead in the water.

That was the time for
banks all across the country to stop funding Bovino, financial experts say. But
only a few adopted that approach.

A Regions Bank loan
officer cut off Bovino's funding in both Georgia and North Carolina in early
2008 after he refused to use collateral from one of his North Carolina projects
to shore up more than $6 million in Georgia loans.

"He stopped
funding our North Carolina project ... because we wouldn't agree with his cross
collateralizing," Bovino said in a deposition after Regions filed to
foreclose. "I told him: 'You'll never see that. And he said: 'You'll
regret what you said.'"

Under a
cease-and-desist order from state and federal regulators, Freedom Bank also
acted swiftly to foreclose on Bovino in May 2008.

But Cape Fear Bank
provided one of Bovino's companies with $2.7 million that same month to help it
pay back taxes and cover future interest payments.

That loan later went
into default and was mentioned as one that helped bring down the North Carolina
bank when the FDIC sued Cape Fear's officers and directors in April 2012.

"No credit history
was located in the file," the FDIC wrote in its suit. "Additional
deficiencies and violations identified on this loan include the failure to
adhere to applicable laws and regulations."

Century Bank executives
were equally negligent, according to a similar lawsuit filed by the FDIC.

Regulatory reports show
that one of Bovino's companies owed the bank $280,000 in back interest payments
in late 2007. But Century kept handing him more money.

The bank first lent the
company enough to cover unpaid interest in March 2008. Then in September, it
lent Bovino's company another $641,000 after the company sent the bank a string
of bounced and uncashed checks.

"That's called
'pretend and extend,' " said Irv DeGraw, a banking and finance professor
at St. Petersburg College. "The bank was playing a little game of
make-believe in the hope that the market would turn and everything would be
OK."

Peninsula Bank took
that game to a higher level.

One of Bovino's
companies defaulted on a $2 million loan from the bank in early 2008. But
instead of foreclosing, Peninsula worked out a deal in which it would renew the
loan as long as one of Bovino's companies took 200 acres in St. Lucie County
off the bank's hands.

Peninsula had
foreclosed on the former owner and did not want to take a loss. So it
transferred the land to Bovino's company and lent him $12.1 million in October
2008 â€” just as the economy was reeling from the collapse of AIG and Lehman
Brothers.

"That's
outrageous," said Newsom, the former FDIC regulator. "He's purchasing
a property to mask a loss to the bank."

Accelerate

Bankruptcy and civil
court records show that at least 120 subcontractors have demanded that Bovino's
companies repay debts totaling more than $13 million.

These include drywall
contractors, plumbers, cabinet makers, pool maintenance companies, roofers,
engineers, architects, tile companies, masons and electricians in six states.
The majority have won judgments in their favor.

One of them, a general
contractor who paved roads and installed a sewer system at Bovino's 400-lot
development outside Wilmington, N.C., is out just over $1 million, according to
a judgment filed in New Hanover County.

James Bovino bet and lost on a 400-lot development in Brunswick County, N.C. It remains vacant.Staff Photo / Michael Braga

"Instead of
telling us to stop when he knew he was in trouble, he told us to
accelerate," said Robert Thomson, a Wilmington general contractor.
"So we started putting in the really big-money stuff like sewers and
sidewalks."

That was classic
Bovino, according to two of his former managers.

As he began running out
of money, those managers say Bovino pressed subcontractors to hurry up and
finish their work so he could submit their invoices to the bank for payment.
But the managers said Bovino did not always use the bank funds to pay his
subcontractors as required by law.

Ronnie Lewallen, a
former executive at Bovino's housing development in the Atlanta suburbs, says
his predecessor "did everything in his power to get subs paid before Jimmy
ran out of money."

This angered Bovino and
his New Jersey executive team, and they quickly clamped down on the payments.

"When he
left," Lewallen said, "they put me in charge. But they didn't let me
control the money. I'm owed more than $100,000."

Though it was not
uncommon for subcontractors to go unpaid during the Great Recession, developers
understand that their long-term reputations are tied to their ability to pay
their bills.

Bovino does not seem to
have learned that lesson.

An associate of builder James Bovino bought these Bradenton town homes in March, but was hit with liens after failing to pay subcontractors.Staff Photo / Michael Braga

In March, he raised
$1.1 million from John Bivona, a New York attorney and owner of Felix
Investments. Manatee deeds show he used $950,000 to purchase a pair of town
homes and 11 vacant lots in Bradenton's Palma Sola area.

That left $150,000 to
fix up the town homes and get them ready for sale, says Hawkinberry, the
interior decorator who helped Bovino find the property.

But Hawkinberry said
Bovino diverted some of the money to a house he was building in New Jersey, so
there was not enough left to pay the bills.

In an email to
Hawkinberry, Bovino explained that he intended to repay the money as soon as he
sold the house in New Jersey. But a "greedy lawyer" took it to pay
one of Bovino's outstanding debts.

"That's what
happens when they find out our past history," Bovino wrote.

Bivona, who provided
the $1.1 million, told the Herald-Tribune he was not concerned about the
diversion of funds.

"He didn't do
anything he shouldn't have done," Bivona said. "If he needed to use
the funds for something else, that was fine with us."

But Hawkinberry has
kept all of Bovino's emails and telephone messages, and they tell a different
story.

In them, Bovino
acknowledges he owes her money but says the only way she is going to get paid
is if she helps him get a $500,000 loan using the two town homes as collateral.

Hawkinberry
consequently referred Bivona and his wife to 1st Manatee Bank, Movement
Mortgage and C1 Bank. But they all declined to make the loans.

Throughout the process,
Bovino told Hawkinberry he intended to use some of the funds from the loans to
pay off debts owed to Iberia Bank, which acquired Century Bank's assets after
that Sarasota lender went under in November 2009.

"That's what I'm
concerned about now," he said in a voicemail message.

He also told Hawkinberry
not to say anything to Bivona.

But when it became
clear that Bovino was planning to take proceeds from the loan to pay off past
debts, Hawkinberry called Bivona.

That made Bovino angry.

"If you insist on
avoiding my directions, I will make sure your association with the company is
terminated!!!" Bovino wrote in an email message. "And let me say
this, if Mrs. Bivona's loan is denied and I find out that you had a
conversation with the bank that caused it to be denied you will be hearing from
our attorney very quickly."

Hawkinberry told Bivona
that if Bovino remained involved in the property, it would be difficult to sell
the units. She told him she had a buyer willing to purchase the property for
more than Bivona's company paid.

But Bivona told the Herald-Tribune
he was not interested in that offer.

7BARRY'S WORLDSharon Gustafson and Barry Florescue are big players on the Broward County social circit, hosting and attending charity galas to raise money for cancer research and other concerns.SOCIALMIAMI.COM

BARRY’S WORLD: BUILDING AN EMPIRE ON PORN, BURGERS AND A BANK

A New York City investor, stealing from retirees
and a German bank in the summer of 2008, needed $10 million to keep his scam
going.

So he asked a Sarasota bank for financial help.

The deal made Century Bank's top officials queasy.

The chief executive and chief financial officer
both said they did not trust the investor. A board member wondered if the loans
were even legal. But at least one Century official wanted that assistance to
happen.

And Barry Florescue usually gets his way.

With the world financial crisis in full bloom and
banks failing across America, Florescue convinced Century's board to approve
two $5 million lines of credit for William Landberg's companies.

Florescue had a personal interest in making the
deal, because he invested money in Landberg's companies and would be hurt if
the funds — later revealed to be part of a Ponzi scheme — collapsed.

Within a year, Landberg was indicted amid
accusations of securities fraud and Century was taken over by the federal
government. Yet Florescue emerged from the mess with much of his wealth and his
reputation intact.

Century was one of 69 banks to fail in Florida
since the beginning of the Great Recession. The Herald-Tribune examined these
failures during a yearlong investigation and found that top bank executives
were responsible for their own demise.

Though the government sued Florescue and four
other directors in civil court over their management of the bank, authorities
say there is no evidence to charge anyone from Century with a crime.

Florescue continues to live in a $13.5 million
estate on a South Florida beach. Companies he controls have spent at least $30
million on commercial real estate. And he has donated $5 million to his alma
mater, the University of Rochester.

Now 69, Florescue is seen by both allies and
rivals as a sharp operator, unafraid to bully his way to power in the world of
high finance. He is a master of the hostile takeover, has enjoyed one business
scrap after another, and has rarely suffered a personal defeat. This, though
many of his own companies foundered, fellow shareholders were hurt and the
American financial system was forced to pay for some of his mistakes.

Even when his businesses failed, Barry Florescue did well for himself. He recently purchased this beachfront mansion in Lighthouse Point.Staff Photo / Anthony Cormier

Florescue would not comment for this story, nor
would many of his colleagues at Century. To investigate Florescue's career, the
Herald-Tribune reviewed filings with the U.S. Securities and Exchange
Commission, federal court cases, corporate documents and real estate records in
Florida.

During the Herald-Tribune's yearlong inquiry into
failed banks in Florida, the newspaper found few characters who lorded over
their institution like Florescue. Despite being forced out as chief executive
in 1997, he remained a powerful figure at the bank until its collapse in
November 2009.

His behavior at Century was emblematic of the rest
of his career.

Over the past five decades, Florescue has owned,
operated, directed, invested in or profited from Automat cafeterias in
Manhattan, a casino in Las Vegas, a home shopping channel, a cosmetics
business, hotel toiletries, healthy hamburgers and even pornography.

Friends say he is a generous benefactor. His South
Florida foundation donates hundreds of thousands of dollars to charity each
year. Along with his girlfriend, he is a regular on the Broward County social
pages. An undergraduate business degree at the University of Rochester bears
his name.

Others say that Florescue is all about Florescue.

His leadership of a fried chicken company was so
bad that Forbes was prompted in a 1987 article to ask, "Why Didn't They
Pay Him to Stay Home?"

He once phoned a Sarasota reporter to complain
that he was left off a list of the region's Top 50 most influential people —
just a few months after he was sanctioned and prohibited from ever serving
again as an officer of his own bank.

He joked to a colleague that he wanted a certain
mansion so badly that he bought it and made the woman who lived there his
girlfriend.

The two are now an item.

"Sometimes a guy gets a negative reputation
when he makes a lotta, lotta money. There is a combination of jealousy and the
fact that he had to make some tough decisions," says Drew Staton, a Boca
Raton investor. "But Barry's a decent human being when you look at the whole
picture."

Chicken
and jets

Barry Florescue goes way back, to a time when
chopped sirloin steak with mashed potatoes and asparagus cost $1.45 and coin-op
Automats were Manhattan's choice for fast food.

Horn & Hardart was one of American's earliest
fast-food companies. It ran automated cafeterias where diners deposited coins
in a slot and selected fresh meals from within a glass case.

Then 34 and a recent business school graduate,
Florescue operated six Burger King franchises in South Florida and Long Island,
N.Y.

With Horn & Hardart, he saw an opportunity.

Together with other investors, he bought a small
stake in the company, won a proxy fight to take control of the board and
ascended to power in 1977.

Florescue had little interest in Automats, though.

In what would become a lifelong pattern, he
benefited financially even while the companies he controlled suffered.

Forbes reported in 1987 that Horn & Hardart
lost millions, but Florescue earned a yearly salary of $850,000 — $1.8 million
in current dollars.

He also had side deals that paid one of his
companies $1.2 million a year to lease corporate jets and hundreds of thousands
more to lease a dozen fast-food outlets in Florida and New Jersey.

But while Florescue grew rich, he made missteps.

He moved Horn & Hardart's headquarters to Las
Vegas, bought the Royal Inn Americana casino and lost $6 million in less than
two years. A pizza restaurant called Mark Twain's Riverboat closed shortly
after he opened it.

A chain of healthy hamburger joints called
Goodbody's never got off the ground. A home shopping TV show with fitness guru
Richard Simmons drew a 1 rating — an audience so meager that the show was only
on the air for weeks, Forbes reported.

But the biggest flop of this period was Bojangles'
Famous Chicken 'n Biscuits.

In 1981, there were 40 of the restaurants in the
Carolinas.

Florescue had the idea to turn them into a rival
to Kentucky Fried Chicken and opened more than 240 outlets across the country.

The result was an disastrous. Restaurants quickly
became run-down. Shares in the parent company crashed, yet Florescue still
managed to benefit.

He owned two Bojangles' franchises that were
struggling in 1985. Instead of absorbing the losses himself, Florescue sold the
franchises back to Horn & Hardart for $1 each and got the company to assume
$8.5 million in debt.

"I did exactly the reverse of what most
entrepreneurs are accused of doing," Florescue told a Forbes reporter.
"I just washed my hands of operations."

'...
Break the Rules'

Subsequent years brought more failure.

Florescue tried to expand his Burger King
franchises into California but was blocked by the leaders of the Miami-based
company who feared his growing power within the chain.

In the early 1990s, he again tangled with Burger
King, suing the company in federal court over "its chaotic, uncoordinated,
inconsistent and ill-conceived" marketing program and its advertising
slogan — "Sometimes You Gotta Break the Rules" — but the case was
ultimately dismissed.

In 2000, he tried to lead a shareholder revolt at
a company that sold toiletries to hotels.

Clifford W. Stanley, Guest Supply Co.'s CEO,
penned a blistering letter to shareholders, urging them to vote against
Florescue's corporation as it attempted to have two people elected to the board
of directors.

Stanley told shareholders that Florescue's group
once offered to buy Guest Supply for $24, dropped that price to $21 and would
likely reduce that sum further.

"We believe that Mr. Florescue has a track
record of acting contrary to shareholder interest and for his own financial
gain," Stanley wrote.

Florescue's bid was rejected.

The following year he made a similar play for
Morton's steakhouse in Chicago, buying 9 percent of the upscale establishment
and again trying to have his handpicked directors appointed the board.

Florescue told shareholders in a letter that top
executives were enriching themselves and not doing enough to keep down costs
and maximize value.

Morton's managers fought back. CEO Allen Bernstein,
said in a letter filed with the SEC that Florescue's past was marked by
"frequent litigation, including findings of self-dealing and allegations
of fraud and securities law violations."

Florescue lost the battle. But he did not spend
much time licking his wounds.

He continued to run Marietta Corp., which
generates $170 million in annual revenues and distributes shampoos, soaps and
other personal care items for the hotel industry.

He bought Caswell-Massey, a large manufacturer of
bath and beauty products, in 2003 and became one of the biggest shareholders
and a director of Friend Finder Networks in 2005.

Friend Finder Networks is a public company that
publishes Penthouse photos and runs websites, billing itself as place to find
"sex dates, adult matches, hookups and f--- friends."

Among the company's most popular features are
virtual peep shows where members can interact with live strippers online.

Since 2011, companies controlled by Florescue also
have spent more than $30 million to buy office buildings and a Walgreens
pharmacy in three Florida counties, according to mortgage records and court
documents.

Florescue joined the University of Rochester's
board of trustees after donating $5 million to sponsor an undergraduate
business major.

He now lives in his mansion in Lighthouse Point
with Sharon Gustafson, a "Grand Dame" of the Broward social circuit,
throwing lavish galas to raise money for cancer research.

His own charitable organization — The Florescue
Family Foundation — uses more than $4 million in assets to invest in everything
from cigarettes to copiers and spends about $300,000 a year on causes ranging
from Alzheimer's research to Boys & Girls Clubs.

"He and Sharon are truly the most giving
people I've ever met," said Anna Tranakas, a South Florida woman who
served on a charity board with Gustafson.

'...
and nothing else'

Florescue bought Century Bank in 1989 and
regulators quickly questioned his management style.

In 1996, the Office of Thrift Supervision charged
him with using bank money to enrich himself and his wife. He bought her a new
Lexus, paid himself a salary and fees before he earned them, billed trips to
Century that were personal and opened a $100,000 line of credit with rates
better than those offered to the public.

Regulators fined Florescue $50,000 and forced him
to give up his title as CEO, according to regulatory documents.

But Florescue said in SEC filings that he never
admitted to wrongdoing at Century, and that the charges against him were
"allegations and nothing else."

Florescue said he simply agreed to the terms set
by regulators and paid "a nominal fee" to avoid long and costly
litigation.

Though barred from serving as an officer and only
visiting once or twice a year, Florescue still loomed large for the bank. He
controlled its five-member board, which was stacked with friends and business
partners. Federal regulators say in their lawsuit that he had "significant
influence over senior management and the everyday operations."

From 2001 through 2007, Century grew quickly,
tripling in size from $300 million to $920 million in assets. But the growth
was tied to shaky underwriting, regulators found.

According to one former executive who asked not to
be identified, Century focused on making loans to customers who would have
trouble borrowing anywhere else.

"Banks are all competing for the same
business and there are only so many borrowers to go around," the former
executive said. "Big banks that can loan more money get the cream of the
crop, leaving independent banks like Century to scrounge for their volume.

"Century was a bottom feeder. It loaned to
the lower end of the market."

Its demise, according to a Herald-Tribune review
of court records and government filings, came because Century did business with
people of questionable ethics and no clear way to repay.

One of those borrowers was William Landberg.

A
Ponzi

Florescue and fellow Century board member Stanley
Kreitman had known Landberg for years.

They all attended New York University as graduate
or undergraduate students and remained connected through their careers.

Both Florescue and Kreitman invested in funds that
Landberg ran from his offices on Long Island, court records show, and Landberg
returned the favor by investing in companies controlled by the two men.

Landberg invested at least $1.5 million in Century
in March 2009 and $1.5 million in Geneva Mortgage Corp., a mortgage company
controlled by Kreitman that sought bankruptcy protection in May 2009.

But the interplay between the three men went much
deeper.

Landberg also borrowed tens of millions from
Century in both good times and bad. It did the same with a bank and mortgage
companies connected to Kreitman, federal prosecutors say.

In June 2006, Century financed Landberg's purchase
of two vacant residential lots in the Hamptons, an enclave of the uber-wealthy
on Long Island. Century initially provided $6.2 million, but later increased
that amount to $10.5 million when Landberg wanted to buy more real estate the
following year.

Federal regulators said these loans broke
Century's policy of not lending outside Florida.

They complained that Century kept increasing the
loans even though the real estate market had began to slump. Examiners also
said the bank approved loans without getting appraisals or reviewing Landberg's
financial statements.

But problems with these initial loans paled in
comparison with the $10 million that Century provided from August 2008 to
February 2009.

By that time, Landberg's investment funds were in
deep trouble and he had initiated a scheme that would result in a 42-month
prison sentence.

"Landberg was pressuring the bank to make
these large and complex loans immediately and under unusual time
constraints," federal regulators wrote in their lawsuit against Century's
leaders, which is still pending in U.S. District Court. Attorneys representing
the officers and directors say that their actions did not cause the bank to
fail, and that the global recession was to blame.

CEO John O'Neil and chief financial officer Don
Farr both said they didn't trust Landberg.

"I do not know whether any of these
complicated transactions are technically prohibited by any law or
regulation," Farr said in a board meeting. "But they do not give me a
real good feeling."

The loans were made at a time when Century's
all-important capital cushion had been worn down.

"As it turns out, these two transactions were
used to fund Landberg's Ponzi scheme," federal regulators wrote in their
lawsuit.

Regulators said that as much as $6 million of the
proceeds went to repay a company where Kreitman served as a director, and there
was a "quid pro quo" arrangement where Landberg agreed to invest $10
million back into Century.

"A portion of the value of this bank depends
on Landberg," Farr said.

'Buddy-buddy'

Arrested in January 2011, Landberg pleaded guilty
to securities fraud.

He told the court in his sentencing memorandum
that he panicked when his investment funds ran into trouble. But investors say
he bilked many of them at a time when they could least afford it.

There were about 100 people involved, many of them
mental health professionals who knew Landberg and his psychologist wife
personally.

One investor — Dr. David Wolitzky — said he was
ashamed of having fallen for Landberg's "self-aggrandizing, bombastic,
manipulative nature."

In his late 70s, Wolitzky said the losses he
suffered mean he won't be able to retire.

"When he invited me to the opera and to
dinner, or to his son's wedding reception, little did I know that the monies
for this sort of thing were coming from my funds," Wolitzky wrote to the
court.

Instead of just letting West End funds collapse
and dealing with the flood of lawsuits, prosecutors say Landberg borrowed $8.7
million from a German bank under false pretenses.

He said the money would fund real estate deals and
finance restaurant franchises. But he funneled $1.5 million to himself and $2
million to pay off a loan to Century.

He also earmarked $3 million to buy Century's
headquarters in Sarasota and help shore up the bank's depleted capital
reserves. But regulators blocked the deal.

In the end, Landberg defaulted on $20 million in
loans from Century and suffered a nervous breakdown that led him to check into
the Payne Whitney Psychiatric Clinic in Manhattan before being sent to prison.

Florescue's ties to the funds and to Landberg were
so deep that he was one of the first people called by Raymond Heslin, a New
York lawyer who took charge of Landberg's investment funds after the
businessman's emotional collapse.

"We generally discussed what steps should be
taken to preserve assets of West End and prevent problems that we all foresaw
as a result of what Mr. Landberg had done," Heslin said in a deposition.

Referring toLandberg, Florescue and Kreitman and
their close relationship, one investor in Landberg's funds said "they were
just a little too buddy-buddy.

"Here we were thinking we were fine and he's
taking everyone's money, throwing it in a pot and doling it out to his
cronies," Dennis Fogarty told the Herald-Tribune. "For a lot of the
investors, especially the older ones, it was lights out. It physically and
emotionally devastated a lot of people."

8BOTTOM FEEDEROhio builder Thomas Parenteau was sent to prison for 22 years for fraud and money laundering.The Columbus DispatchPamela McCarty wore a wire and testified against her lover in an Ohio fraud case. She was sentenced to two years in prison. The Columbus DispatchMarsha Parenteau was sentenced to 33 months in prison for helping her husband with a tax scheme. The Columbus DispatchPaul Bilzerian, second from left, used his mansion near Tampa as collateral for loans from Century Bank - even though the federal government said he owed $62 million for securities fraud. Tampa Bay Times

Risky bets drove one Sarasota bank into the ground

SARASOTA — Century Bank broke some of its
industry's fundamental rules by financing deals that were destined to fail, and
by looking the other way when it was clear a borrower had no way to repay.

Among its most egregious mistakes were loans to a
convicted drug peddler, a property flipper and an investor who had been
convicted of securities fraud.

Each loan involved a multimillion-dollar mansion
and came after housing prices were already on the decline.

In each case, bank employees advised their bosses
to deny the applications. But, obsessed with short-term growth and profits, the
bank's leaders approved the loans anyway, according to a former executive who
asked not to be identified.

Century was founded in Sarasota in 1985 and
purchased four years later by Barry Florescue, a corporate executive with ties
to everything from Burger King to pornography.

Florescue was barred by federal regulators from
leading the bank after a series of insider deals in the 1990s, though he
maintained a strong grip on Century in subsequent years.

Century failed in November 2009.

To investigate this bank, the Herald-Tribune
reviewed federal court documents in two states, filings with the Securities and
Exchange Commission, and mortgage and foreclosure records in Palm Beach and
Hillsborough counties.

Federal regulators have since sued Century's board
of directors, accusing its five members "of ignoring glaring
deficiencies" in loan applications and "approving loans to borrowers
of known questionable honesty."

This sort of "gross negligence" on the
part of the bank's leaders contributed to the bank's failure, regulators said.

The directors have denied those claims, arguing
that it was the economic downturn that doomed the bank, not their decisions.

But a closer look at three of the bank's loans
tells a different story:

A man who went to prison for selling drugs on the Internet tried to launder profits through a Boca Raton mansion. Federal prosecutors tried to seize the house, but Century Bank foreclosed on it and sold it at auction to a company with ties to a bank director.STAFF PHOTO / Anthony Cormier

The
drug peddler

In Panama, he was "Juan Montes." Online,
he often went by "Mike Johnston."

But to federal agents, he was Michael James
Arnold, online drug kingpin and money launderer.

Arnold oversaw websites that sold Valium, diet
drugs and other medicines without a prescription. He laundered millions of
dollars by switching money between bank accounts and buying luxury items
including a Ferrari 575M Maranello.

But court records show that his plan to launder
even more money by purchasing a mansion in Boca Raton needed financial backing.

When he approached Century for a loan in December
2006, the bank's underwriters saw red flags and told their bosses not to OK the
deal. They did not know that Arnold was being investigated by federal drug
agents and would be sent to prison for five years — but bank insiders say
underwriters fretted about him anyway.

Here was a 35-year-old who had filed for
bankruptcy protection four years earlier listing $121,000 in debts. He was a
first-time homebuyer with no stable source of income.

But somehow he had accumulated at least $3.7
million in cash and wanted to buy a $9 million mansion overlooking the Atlantic
Intracoastal Waterway from a mysterious seller who had bought it just two
months earlier.

The underwriters turned Arnold down — twice.

But their opinions didn't matter. A former Century
executive said they were overruled by the bank's majority shareholder.

Barry Florescue, who bought Century in 1989 and
was later removed as CEO for profiting at the bank's expense, pressed for the
deal, according to the former Century executive.

Arnold was bringing nearly $4 million of his own money
to the closing. So even if he defaulted, the bank could resell the house at a
profit.

It didn't matter that the deal broke a slew of
Century's underwriting policies, or that Arnold was buying the house from a
company managed by an accountant in the Isle of Jersey — a well-known tax haven
off the coast of Great Britain.

The deal would allow Century to keep growing as
the real estate market was beginning to sag.

What Florescue and other Century officials did not
know was that federal agents had begun investigating Arnold back in 2005 and
now intended to freeze his assets.

Seven months after approving the loan, the bank
got a letter saying the house was subject to seizure by the Drug Enforcement
Agency and that its loan might never be repaid.

Century fought back in court, claiming that it was
an "innocent" party to Arnold's drug scheme, and that it had first
dibs on the mansion.

Bank executives said they planned to foreclose on
the home to get some of their money back and the court took their side.

But before foreclosing, Century's leaders
inexplicably lent Arnold another $38,000. It is not clear from court documents
why the bank made that loan or how the money was used.

Century sold the home at an auction in Palm Beach
in July 2009. There was only one bidder: Bell Gustafson LLC, a company managed
by Marc Bell and Sharon Gustafson, Florescue's business partner and longtime
girlfriend.

Bell is the president of Friend Finder Network, a
company that runs pornographic sites, including those that feature online peep
shows and publish Penthouse photos and videos.

Documents filed with the SEC show that Florescue
was one of Friend Finder Network's largest investors and had a seat on the
board of directors.

The other name tied to Bell Gustafson was Florescue's
girlfriend. Gustafson is a member of the Royal Dames of Cancer Research, is
regularly featured on South Florida society pages and throws lavish galas at
the couple's beachfront mansion for charity.

Court records show that Bell Gustafson paid $6.2
million in cash for the Boca Raton mansion and received a $5.6 million loan
from Century Bank two months later.

The partners held the house for 11 months and sold
it to a company run by a New England hedge fund manager for $100,000 more than
they paid.

Gustafson would not open the gate to speak with a
reporter who visited their mansion this summer. "You need to speak to
Barry about all of that," she said.

Thomas Parenteau went to prison for fraud and used Century Bank loans for this mansion in Columbus, Ohio. At one point, Parenteau, his wife and mistress all lived together in the opulent home.The Columbus Dispatch

Cheating

The Internal Revenue Service was asking questions.

His mistress was drinking a bottle of vodka every
night.

His wife was helping him with his mortgage fraud
scheme. And Thomas Parenteau's complicated web of lies was about to fall apart.

A seemingly successful Ohio homebuilder, Parenteau
had convinced his mistress, Pamela McCarty, to submit false tax returns to the
IRS soon after they began their affair in 2000, according to federal
prosecutors.

She made as much as $1 million a year as a real
estate agent, but Parenteau said she was giving too much to the government. So
he helped her set up a dummy company that lost hundreds of thousands from the
bogus sales of art and home furnishings to offset her income, prosecutors say.

When McCarty was fired from her real estate firm
in late 2003, Parenteau created a fake job for her — complete with an
employment agreement and pay stubs — so banks would lend her $6 million against
the 30,000-square-foot mansion they lived in on the banks of the Scioto River
in Columbus, Ohio, according to court documents.

But a knock on the door in October 2005 changed
everything.

IRS agents wanted to know why McCarty, who had
been so successful selling real estate, was suddenly losing money with her new
business.

Afraid that the investigation would lead to
McCarty's fraudulently obtained loans, Parenteau began looking for a way to pay
them off.

His first stop was Washington Mutual, the failed
Seattle bank that proved to be one of the loosest lenders in U.S. history.
Parenteau asked for $10 million. But WAMU turned him down after discovering he
had presented tax returns that inflated his income by several million dollars.

Parenteau searched for another lender.

With help from a mortgage broker, he was
introduced to Century — a bank 1,000 miles away in sunny Florida.

During his criminal trial years later — a messy
affair in which Parenteau represented himself — he told the jury about a
September 2006 phone conversation with Century's president, chief financial
officer and a loan officer.

"Everything went well until the president
said, 'I want to see your tax returns,'" Parenteau recalled. "I said,
'It's not on the table. ... It's not the basis of my loan request. I'm willing
to put money in your bank. I'm willing to do an asset-based type loan, if
you're willing to consider it.'"

Century wisely turned him down.

But within a month, the bank's top executives
changed their minds and lent Parenteau $12 million in January 2007.

Besides refusing to produce his returns, his
former accountant testified in court that Parenteau lied about his income and
assets on the loan application and inflated the amount of money he had sunken
into his mansion.

The appraisals, stating that the house was worth
$16 million, also looked suspicious because none of the comparable properties
were anywhere near Columbus. They were as far away as Atlanta and Franklin,
Tenn. Some were much smaller.

Parenteau later admitted in court that his mansion
would be almost impossible to sell. It would require someone of incredible
means like Arnold Schwarzenegger, Eric Clapton or rapper Little Bow Wow.

"Think about it," Parenteau said.
"How many people exist around us that have that kind of money?"

But Century made the loan anyway.

A few months later, federal agents sent the bank a
letter requesting to see the loan file.

Realizing there was a potential problem, Century
froze a $3 million certificate of deposit that Parenteau held at the bank's
Sarasota headquarters.

At the same time, officials stalled after federal
regulators asked them in 2007 to order another appraisal of the Columbus
property, regulatory documents show.

When regulators revisited in May 2008, the
appraisal still had not been ordered. So examiners asked again.

By August, bank officials finally obtained one —
and learned the disastrous truth about Parenteau's mansion.

The home was worth $4.2 million, nearly $12
million less than the original value. Century's leaders tried to hide the
document, according to regulatory reports. Examiners did not find it until 2009
and they weren't happy.

"Since Century did not obtain the appraisal
in a timely manner and ignored the appraisal they later received, Century
delayed recognizing the loss and consequently distorted the thrift's true
financial position," authorities reported after the bank failed.

Parenteau has since been sentenced to 22 years in
prison for his crimes. His mistress wore a wire for the prosecution, testified
against Parenteau in court and was sentenced to two years in prison as part of
a plea agreement.

"What led me to come clean, to be honest, was
I am an alcoholic and I was drinking very, very desperately," McCarty told
the jury. "I was drinking a bottle of vodka a day in a closet when my kids
would go to bed. I was living with the pain of these lies and the abuse of living
a double life."

Paul Bilzerian was a corporate takeover artist who went to prison for fraud and has spent years fighting the government over his 30,0000-square-foot home north of Tampa. Despite a $62 million judgement against him, Century Bank lent Bilzerian $5.5 million in 2006.Mike Pease / Tampa Bay Times

The
securities fraudster

Imprisoned for securities fraud in the late 1980s
and with two bankruptcies under his belt by 2001, Paul Bilzerian was not the
kind of borrower most banks would want to do business with.

The SEC was after him to collect on a $62 million
judgment and he had been ordered to sell his 30,000-square-foot mansion in
Tampa's Avalon neighborhood in 2002.

But Bilzerian still managed to get a $5.5 million
loan from Century against that same house four years later.

Court records show he did it by transferring the
mansion to a series of companies controlled mainly by his wife's parents.

Underwriters at Century were not fooled by the
shell game. They knew Bilzerian was applying for a loan in December 2006 and
they were well aware of his history.

Melody Shimmell, a former fraud examiner for the
bank, even made a sarcastic comment to the CFO about whether someone would have
to be criminal to get a loan like that.

Bilzerian, who made close to $100 million from
hostile takeovers attempts in the 1980s, was convicted of securities and tax
fraud in 1989 and spent 13 months of a 48-month sentence in prison.

He filed for bankruptcy in 1991 and again in 2001,
declaring $140 million in debts and only $15,805 in assets.

Despite his self-proclaimed poverty, he continued
to live in the mansion, with its indoor basketball court and 17 bathrooms,
confident that Florida's liberal bankruptcy laws would protect his home from
seizure.

But the bankruptcy court did not respond the way
Bilzerian expected. He was thrown in jail for contempt in 2001 after refusing
to disclose his assets and was only released after agreeing to sell his house.

An auction was held in May 2004.

The winning bid came in at the surprisingly low
price of $2.55 million.

The buyer was a company controlled by Bilzerian's
in-laws and a neighbor, Mary Haire.

Under Bilzerian's agreement with Haire, the house
was supposed to have been resold within a year. But Bilzerian kept blocking the
sale. So Haire sued him and obtained a court order in September 2006 to have
him evicted.

Once again, Bilzerian outfoxed his adversaries.

With help from Century's $5.5 million loan, he arranged
for a company controlled by his wife's parents and the son-in-law of the
auctioneer to buy the house, court records show.

"I don't have any money to put in a
bank," Bilzerian said in a deposition a few months before Century approved
the loan. "Don't need one."

Fifteen months later, Century gave the company
controlled by Bilzerian's in-laws another $750,000.

Ernie Pinner, left, Jim White and John Corbett steered CenterState Bank through the Great Recession by making sensible loans and conservative business decisions.The (Lakeland) Ledger / Pierre DuCharme

A SMALL BANK STUCK TO THE RULES
AND SURVIVED THE SLOWDOWN

DAVENPORT
-- There are two ways to make money in banking: the easy way and the hard way.

The
easy way means paying top dollar for deposits then lending that money back out
at even higher interest rates -- usually to customers who can’t get loans
elsewhere and are more likely to default.

This
was the status quo for many of the 69 banks that failed in Florida during the
Great Recession.

A
Herald-Tribune investigation found that these banks had such a lust for growth
and profits that they were willing to break some of the industry’s most
fundamental rules -- as well as federal and state laws.

But
one Central Florida bank survived the bust by sticking to the basics and making
money the hard way.

Based
in a rural town southwest of Orlando, CenterState Bank was strong enough to
gobble up six failed competitors and is now one of the healthiest lenders in
Florida.

“They
didn’t get caught up in the ‘growth for growth’s sake’ mantra,” said Paula
Johannsen, a banking analyst with Monroe Securities in Tampa. “They didn’t
chase loans like other banks. They concentrated on attracting the right type of
core deposits, which is how good, long-term banks drive growth.”

Closing
in on $3 billion in assets and eyeing another $2 billion by 2016, CenterState
is a rare Florida success story.

Instead
of building fast and selling out to a bigger bank after five or six years,
leaders focused on building long-term relationships with its customers. They
stayed local and did not make risky development loans on Florida’s coasts. They
encouraged staffers to learn the business and rise internally. They took in
deposits at low interest rates, which meant they didn’t have to turn around and
loan that money to people with sketchy financial backgrounds.

The
bank’s philosophy is so simple that executives include it on their website, on
investment documents and even their phone message for customers on hold:

“We
will not sacrifice credit quality for short-term gain.”

The
history of banking is littered with banks that ignored this common sense rule.

More
than 270 Florida banks went out of business during the Great Depression. Ninety
more failed after the savings and loan crisis of the late 1980s and early
1990s. Yet despite these historical precedents many Florida bankers found
themselves unprepared for the most recent economic slump.

They
invariably told the public that the downturn took them by surprise. Even though
home prices had been rising by 30 percent per year, they saw no bubble. For
them, the laws of gravity no longer applied.

By
contrast, CenterState’s leaders remained grounded in history. Top executives
were trained through a system that works like an apprenticeship and traces back
nearly 100 years -- one banker passing on the tenets of safe banking to the
next. They were aware of past crises and what caused them, and took basic steps
to ward off deep losses suffered by other banks.

The
bank did not escape unscathed, though. No one did.

It
foreclosed on more than $100 million in loans. But that number was dwarfed by
the capital it held in reserve in case of emergencies.

While
other big banks like Riverside National, Orion, Florida Community and
Sarasota’s Century Bank saw their capital ratios plunge in 2009, CenterState’s
actually grew that year and remained steady throughout the crisis.

There
are now 100 fewer banks in Florida than there were when the recession began in
late 2007. One in three either failed or was taken over by a stronger bank, and
experts say another 40 to 50 will be acquired during the next five years.

Together
with other strong Florida lenders -- like Stonegate, Harbor Community and C1
Bank -- CenterState is expected to be one of the institutions left standing.

“CenterState
is among the better -- if not the best -- banks in Florida,” said Bill
Nicholson, whose Jacksonville company helps lenders raise money. “It not only
survived the downturn, it had enough capital and credibility with regulators to
be qualified as a bidder of failed banks.”

‘On the right path’

At the
core of CenterState is its culture, and the the person most responsible for
that is James H. White, a retired banker who launched and managed more than a
dozen Florida banks over the years.

“He,
more than anyone else, put the bank on the right path,” said Ben Bishop, a
longtime Florida bank analyst.

White,
now 87, grew up during the Great Depression.

The
son of a Methodist preacher, he saw how his family and neighbors suffered in
his hometown of Hastings.

“One
year, my father only raised $80 from the church,” White said. “But we had a
garden, and if someone killed a hog they would bring us a piece of pork.”

Those
difficult days, and the fact that “people looked out for each other,” stuck
with White all of his life. Unlike competitors at other Florida banks, he
remained wary of taking the kind of risks that might make history repeat
itself.

White
entered the world of banking in 1951 after a stint as a salesman for his
father-in-law’s wholesale grocery business. He was tapped to run First State
Bank of Fort Meade and says he thanks God every morning for one of his mentors:
Bradley Keen.

Keen
had managed a bank during the Great Depression and was a director of First
State when White signed on. Though retired, Keen came in every day to see if
White needed help.

Keen
taught White how to read customers and figure out who was a safe bet and who
was not.

“He
could analyze a person’s character just by reading a financial statement,”
White said. “He could see whether someone was exaggerating their net worth or
betting on the come."

White
learned that financial statements are never as good as they seem, that there is
always a problem somewhere -- and rooting out that problem requires knowledge
of the local market and a sixth sense about people.

“You
just let them talk about their business,” White said. “If they have good
integrity and know how to work, you get a sense of that.”

White
passed these lessons on to the bankers he mentored over the years, including
his co-founders at CenterState.

But
while lending could get a bank in trouble, it was not the most important part
of banking to bankers like White.

His
main focus was on the other end of the equation -- gathering deposits.

At
CenterState, the goal was to set up branches in small rural communities and attract
“mom-and-pop checking accounts.” These may be small amounts, but they are
usually free -- and certainly cheaper than certificates of deposit.

Using
checking accounts as its foundation, CenterState kept down its “cost of funds,”
which represents the amount of money a bank spends to get people to deposit
money in its vaults. The lower cost, the easier it becomes to make a profit
from making loans.

Financial
reports show that CenterState’s cost of funds was at least 25 percent lower
than failed Florida banks.

“We
always had the cheapest cost of money,” White said.

‘Not part of our culture’

White
also had a keen eye for talent.

He
helped a dozen proteges start banks in Florida over the years, but
CenterState’s co-founder, Ernie Pinner, was special.

Pinner
is the son of a single mother who waited tables to provide for her family. He
learned the value of money early in life.

Now
66, Pinner first worked as a janitor for the State Bank of Haines City and
later became a teller to help pay for college. White forced him to save $125
each week so he would have $3,000 by the end of the year.

“Of
course he only paid me $128,” Pinner quipped. “So I had to take a second job.”

After
serving in the military, Pinner went back to work for White at a series of
banks that were ultimately merged into First Union.

With
White’s help, Pinner launch CenterState in 1999.

From
the beginning, it was conservative. It did not pay for high-priced deposits or
CDs. It steered away from loans to developers of shopping malls, office
buildings and apartment complexes, which are some of the riskiest a bank can
make. Only 5 percent of CenterState’s loans were in this category. That
compares with 40 percent or more at the now-defunct Orion Bank in Naples, which
also had a large presence in Manatee and Sarasota counties.

“To
a certain extent, we were fortunate that there was not a lot of commercial
development going on here,” said Pinner, looking out over the orange groves and
agricultural land that spreads beneath the third floor window of his Davenport
headquarters.

CenterState
also avoided outside loan brokers.

“The
broker is not part of our culture,” Pinner said. “He’s a sales person trying to
do a deal.”

In
other words, the broker is looking out for the broker -- not the health of the
bank. While other Florida bankers used these middlemen to close deals all over
Florida, CenterState built relationships within its own communities -- like the
one Pinner developed with an outdoor clothing retailer based in Winter Haven.

“I
started banking with them they day they opened,” said Scott Hart, the president
of Andy Thornal Co. “Ernie Pinner is a personal friend of mine. I can sit down
and talk face to face with him and he can give me an answer. I don’t have to
call anyone else.”

Rainy day savings

Because
CenterState’s cost of funds were so low, the bank made money without having to
lend to risky borrowers. From 2001 to 2008, it reported returns on equity
between 8 and 13 percent.

This
was much lower than some of its competitors, especially high fliers like Orion
or Florida Community Bank in Immokalee. Those banks reported returns reaching
20 percent or more during the same period.

But
CenterState’s lower numbers revealed another strength: It held more capital in
reserve than most of Florida’s failed banks and kept raising more whenever it
could.

“Mr.
White always used to say that the time to get capital is when you can get it,”
Pinner said.

This
strategy -- basically saving money for a rainy day -- was a stark contrast to
many of those banks that flopped during the Great Recession. Some of these
institutions pulled capital out of their banks just as the market began to
nose-dive, usually in the form of dividend payments to shareholders.

Orion,
for example, paid out $28 million in dividends in 2007 -- the same year it
reported more than $6 million in losses. Similarly, Riverside took $27 million
in 2008 while booking losses of $139 million.

By
contrast, CenterState kept refilling its coffers during the run-up to the Great
Recession and added another $28 million in Troubled Asset Relief Program, or
TARP, funds during the depths of the crisis in November 2008.

The
funds were only being offered to the country’s strongest banks at that time and
CenterState’s board felt it would be at a competitive disadvantage if it didn’t
take the money.

“Given
hindsight, I wouldn’t do it again,” Pinner said. “I didn’t realize how the
program would be perceived.”

When
popular opinion turned against the bailout, Pinner and his executive team raced
to return the money.

In
July 2009, the bank raised $86 million from a successful public offering and
sent the funds back to Washington as soon as they got someone to answer the
phone.

“They
didn’t want it back,” Pinner said.

‘Birds of a feather’

In
2003, Pinner tapped John Corbett to be CenterState’s chief executive.

Born
in Miami and raised in Winter Haven, Corbett got to know Pinner from church and
went to work for him as a teller at First Union when he was still in college.

Corbett,
45, more than doubled CenterState’s loan portfolio from $414 million in 2003 to
$892 million in 2008.

By
that time, the downturn was in full swing and bad loans began piling up. But
instead of nursing the bank’s wounds, Corbett opted to go on the offensive.

“Other
banks had a ‘tread water’ strategy,” Corbett said. “We were ready to play both
offense and defense.”

The
strategy was welcomed by Wall Street investors, who provided CenterState with
more than $120 million at a time when other Florida banks could not raise a
penny.

In
January 2009, CenterState bought its first failed bank -- Ocala National. It
went on to purchase five more collapsed banks over the next three years.

“The
crucible for us was 2010,” Corbett said. “We had planned to convert our
computer system to a much bigger platform. At the same time, we saw an uptick
in problem loans, completed a major capital raise and bought three banks in 90
days.

“As
I look back, I never want to live through that again,” Corbett said. “But it
did wonders for our team’s confidence. They went through the fire together and
learned they could handle it.”

The
strategy paid off for CenterState in a big way. Corbett estimates that the bank
has made about $60 million in profits as real estate values in Florida have
rebounded.

Corbett
said CenterState is now well positioned to purchase healthier Florida banks and
even expand out of state.

In
the meantime, he said CenterState will keep trying to attract lenders and other
employees with the same value system.

“Birds
of a feather flock together,” Corbett said. “Of course, we run across people
who don’t fit our culture. But things get sorted out pretty quickly. If we
bring a guy in and he begins to stray a little, he probably won’t get his loans
approved.

“Before
long the guy’s back on track or he realizes he’s in the wrong place.”

10MYSTERIOUS FAMILYSusma Patel was a lawyer with scant banking experience when her family bought a controlling interest in First National Bank of Central Florida in 1997.IndUS Business Journal

Mystery family, failed bank and
‘devilishly clever dishonesty’

WINTER PARK -- Susma Patel would not talk about her family's wealth.

After paying $5.5 million to rescue a Central Florida bank in 1997, the
young lawyer told the press that her uncle had left behind a sizable
inheritance, but she "had no idea" how he'd made his millions.

Besides, her family matters were private.

"We're Indian, after all," she told the Orlando Sentinel.

But now that First National has failed, a more complete picture of the
Patel family is beginning to emerge.

Susma's father, Madhusudan Maganbhai Patel, was sentenced to prison in
Kenya for smuggling in the 1970s and was convicted of cheating the British
government out of millions in alcohol and tobacco taxes in the 1980s. Susma's
brother, Suketu, received a two-year suspended sentence for the same tax dodge.

It remains a mystery where the money came from to take over First National
Bank of Central Florida. It is clear, though, that trouble followed the family
to the United States.

Court records and interviews with former First National employees show
that bank officials misled the federal government about the number of insider
loans; bank officials made favorable deals to family members and their business
partners; and they extracted millions from the bank in the months before its
collapse.

During a yearlong examination of failed community banks in Florida, the
Herald-Tribune found that most of the institutions failed because of the greed
and incompetence of their leaders.

This was certainly true of First National.

Mortgage documents and federal records show that just one other failed
Florida bank logged more defaults from insiders, that regulators allowed a key
member of the Patel family to oversee operations despite a felony in his
background, and that investors earned payouts even as First National lost
money.

No one involved with the bank is accused of a crime in connection with its
failure.

Regulators shuttered First National in April 2011, costing the financial
system $43 million to clean up. A post mortem by federal regulators said
"the bank experienced a substantial depletion of assets or earnings due to
unsafe and unsound practices."

Susma did not return emails left with her family's attorneys or two phone
messages left on her husband's answering machine in New York.

In a November 2011 court deposition, she blamed the economy for First
National's collapse.

"Downturn in the economy," she said. "Real estate values
dropped and the exposure to the loan portfolio was too great."

But that's not the whole story.

Embezzlement and poor management

First National had plenty of trouble even before the Patels entered the
picture.

Founded in 1985, the bank limped through the Savings & Loan crisis and
hired Martin Hartmann as CEO in 1992 to jump start growth. His tenure was a
disaster.

Hartmann embarked on a failed strategy of expanding the bank by setting up
branches in supermarkets across Central Florida — and he was bilking the bank
of hundreds of thousands of dollars at the same time. Federal authorities
convicted Hartmann of taking more than $200,000 in kickbacks from vendors and
arranging a phony $100,000 loan to a friend. He was sentenced to 19 months in
prison.

Hartmann wasn't the only criminal working at First National. Branch
manager Joaquin Vasquez stole $223,000 from customer deposit accounts between
1995 and 1997 and pleaded guilty to embezzlement in 1998.

The financial impact of these crimes, combined with nearly a decade of
poor management, caused the bank to report $3.4 million in losses in 1996 and
1997.

"We tried a lot of different ways to make money — like supermarket
branches and issuing credit cards -- but those ventures just dragged us
down," said William H. Cross, a former First National director. "We
needed an outside group to come in and keep things rolling."

First National's leaders tried to save the bank through a public stock
offering, but were forced to scrap the plan when news leaked of Hartmann's
fraud.

"We were on the brink of being taken over when the Patels came to the
table," Cross said.

Mysterious new owners

Russell Mills, a First National director, was already doing business with
the Patels in the late 1990s and suggested they invest in the struggling bank.

"We sort of accidentally got into banking here," Susma told the
Orlando Sentinel in 2008. "When I say 'we,' I mean my brother, who was 11
years my senior, and I. Our family had a wholesaling business in the U.K. and
we also had real estate interests there and here. We invested in a number of
businesses, and we responded to a capital call from First National in the 1990s."

Everything about the family's purchase was secretive. Even some of First
National's smaller shareholders had no idea who was buying majority control
until several months after the investment was made.

The Federal Reserve Bank in Atlanta listed the names of five people who
had filed for a change of control. But with a common surname like Patel, it was
difficult to learn more about them.

Susma, a recently graduated lawyer, was not making things any easier.

"She's not interested in talking about where the money with which she
bought the bank came from or where the bank she bought is going," the
Sentinel wrote in September 1999.

'The Swerve'

Former First National employees say that the Patels hail from Gujarat, on
India's northwest coast, and that they moved to Kenya, where they ran an
import-export business.

Reports from British courts show that the family's patriarch, Madhusudan,
was sentenced to more than four years in prison for smuggling in the 1970s. He
spent three years behind bars and was eventually deported from Kenya.

The family then moved to London, where they supplied discount stores with
beer, wine, liquor and tobacco.

By 1984, the Patels were in trouble all over again. This time, a British
judge ruled that Madhusudan, his son, Suketu, and another family member had
been involved in "very devilishly clever dishonesty" that cheated the
government out of millions in tax revenues.

Court News UK, which documents criminal justice matters, reported in 1987
that their company sold $100 million worth of alcohol and cigarettes over a
two-year period but failed to pay about $6 million in taxes.

Madhusudan, Suketu and Bipin Patel all pleaded guilty to tax fraud and
were sentenced to two years in prison. Madhusudan spent eight months behind
bars, Bipin six. Suketu had his sentence suspended because the court considered
him a subordinate.

At his sentencing hearing, Madhusudan's attorney said that the patriarch
was deeply ashamed of what he had done, and that he had not profited from the
fraud. But it wasn't the last time Madhusudan would be embroiled in a British
tax fraud investigation.

In the late 1990s, he became one of 109 suspects arrested by British
customs officials for engaging in a massive scheme -- it was dubbed "The
Swerve" -- that deprived the British government of $4 billion in tax
revenues.

Businesses run by the Patels and other distributors pretended that they
were moving alcohol from bonded warehouses in Britain to other countries in the
E.U. But the booze never left the island. It was rerouted and sold on the black
market, often from white delivery vans parked near pubs and restaurants, court
documents and news reports show.

The BBC, which aired a TV special about the scheme, used a single bottle
of whiskey to explain the criminal enterprise:

"In the Cash and Carry it'll cost you £10.80. Of that, over £7
accounts for the tax. Now, take 17,000 of these bottles, load them on a lorry,
swerve them to the black market and we, the taxpayers, have just lost over
£100,000."

Madhusudan pleaded guilty to evading about $14 million in taxes in 1999
and was sentenced to 30 months in prison. But an appellate court set aside his
plea in 2002 after ruling that the British customs service facilitated the
crimes and provided false evidence to defense attorneys and the court.

Personal piggy bank'

A company controlled in part by a Patel family member borrowed money from First National Bank of Central Florida to buy an office building, center, in downtown Jacksonville. The company later defaulted on those loans.Google

Madhusadan was embroiled in the "Swerve" investigation when his
wife and two children invested $5.5 million in First National.

U.S. financial regulators were unaware of what was going on in England and
appear to have overlooked Suketu's criminal record when they allowed the family
to take control of the bank.

It is against the law for someone with a felony conviction to oversee a
bank, but First National was on the brink of failure. In a hurry to
recapitalize the foundering institution, regulators did nothing to stop the
change of control even after learning that the investor group had failed to
file an application 60 days prior as required by law.

Representatives from the Federal Reserve Bank in Atlanta would not comment
on the record about why Suketu was allowed to invest in a U.S. bank or why it
did not follow its own rules.

"The guy with a criminal record shouldn't have been allowed as a
principal investor," said Richard Newsom, a retired California bank and
thrift regulator.

Susma, without a blemish on her record, was tapped to be the face of the
Patel family in Florida. But her youth and lack of banking experience, combined
with rules prohibiting foreign nationals from sitting on the board of a U.S.
financial institution, kept her from immediately exerting control.

In the meantime, a series of chief executives and a largely American board
of directors managed the bank. Two of those leaders told the Herald-Tribune
that they went out of their way to make sure that First National did not become
the "personal piggy bank for the Patel family."

In 1999, the bank faced an enforcement action from regulators that meant
it was being more heavily scrutinized. As CEO Jeff Longstaff tried to get First
National out from under scrutiny -- technically known as a Memorandum of
Understanding -- the Patels stayed largely in the background.

Susma slowly learned American banking laws while her brother acted as an
informal advisor, Longstaff says.

The family made no inquiries about obtaining loans from First National,
nor did they attempt to take greater control of the bank.

"To be perfectly honest, I wasn't concerned about their borrowings
during that first nine or 10 months," Longstaff said. "Virtually
everything that we did was focused on cleaning up the bank. But prior to my
leaving, they were starting to make introductions to the bank from some of
their friends, clients and acquaintences. And, of course, I was going to be very
careful about that."

With the order lifted, and the bank able to operate more freely, Longstaff
tried to dilute the Patels' ownernship by holding an approximately $20 million stock offering
in 2000. The idea was that a wider number of shareholders is good for community
banks, because it thins the power of dominant owners and gives the institution
the capital it needs to grow.

The Patels were initially reluctant to go along with this plan, but
eventually agreed. Longstaff says he drew up a proxy statement but, on the day
of the shareholder's meeting, the Patels backed out.

Longstaff says he felt "submarined" by the move -- which allowed
the Patels to keep their stranglehold on the bank's leadership.

"It came as a complete shock," he said. "I was angry, I
felt there was no future for me going forward so I eventually left."

But former employees say resistance to the Patels among the board's
directors continued for at least five more years. That was largely due to the
leadership of Hugh Cotton, a former director and insurance agent who died in
2006.

"My father was determined to stop the bank from making loans to the
Patels that it wouldn't make to anyone else," said Tom Cotton, who now
runs his family's insurance agency.

Cotton was dying and made a final attempt to stop the bank from making a
risky loan to a company controlled by Minesh Patel, who identified himself as
Susma's nephew.

"Minesh had just gotten his contractor's license," Cotton said.
"He had never built anything before, but wanted to borrow an enormous
amount of money for some project in Jacksonville. No bank in the world would
make that loan, and Dad wanted to make sure they didn't do it while he was
alive."

Despite Cotton's efforts, mortgage records show that companies controlled
by Minesh and his business partners borrowed $9 million from First National,
which they used to buy prime office space in downtown Jacksonville.

Their companies later defaulted on those loans.

Reached by telephone in Orlando, Minesh declined to comment.

Insider dealing

A company controlled by Susma Patel sold this building and two others to First National Bank of Central Florida for nearly twice what they were worth in June 2010 – at a time when the bank desperately needed that money to stay alive.Google

Susma Patel began to gain power during the height of the real estate boom
-- just as banks across the country were loosening their lending standards and
ushering in the worst economic collapse since the Great Depression.

When she first arrived in the Orlando area, she worked on business
development and public relations. She also served as a guest on loan committees
and on the board of directors. But by 2006, Susma had risen to chairwoman and
would become CEO two years later.

"I never liked her much," said Larry Dale, a First National
director and the former mayor of Sanford. "I didn't think much of her
business acumen. She had a majority interest and there was always a little
friction there. When family members wanted loans, we didn't go along with
that."

Court records show the first loan First National made to members of the
Patel family or their business partners was in March 2005. It was a $5.9
million loan to a company managed by Guy Novik, who was co-developing a housing
project with the Patels just across the Polk County border in Davenport. The
company also employed Minesh Patel as a senior vice president.

Over the next two years, the bank made $9 million in loans to companies
controlled by Minesh Patel and Lalji Kanji, a close business associate from
Kenya. When First National failed in April 2011, the amounts outstanding on
these loans and a smattering of others to Novik and Minesh accounted for 30
percent of the bank's total losses.

The defaults caused First National to stand out among the 69 banks that
failed in Florida during the last five years. While many of its counterparts
lent money to officers, directors and their families during the run-up to the
real estate boom, only one other failed Florida bank -- Riverside National Bank
of Florida in Fort Pierce -- suffered more losses from insiders.

Mortgage documents in Florida show that First National did not always tell
regulators about the relationship between borrowers and the Patels.

Records reviewed by the Herald-Tribune show that First National had at
least $18 million in outstanding loans to companies controlled by members of
the Patel family or their business partners between 2005 and 2011. But
financial documents filed with the Federal Deposit Insurance Corp. during the
same period reveal a different story: Insider loans averaged just $4 million
per year and briefly spiked to $10 million in 2008.

Meanwhile, First National shareholders kept taking money from the
institution even when it was racking up losses. Records filed by the bank show
it paid out dividends totaling $793,000 in 2008 and 2009 despite losing $9
million in those years.

Then, in June 2010 -- with First National bleeding money -- a company
managed by Susma Patel sold three buildings to the bank for just under $5
million. This price was nearly double the value of those buildings, according
to records held by the Orange County Property Appraiser.

"The bank shouldn't have been buying branches at that point,"
said Newsom, the former bank regulator. "If anything, it should have been
selling branches with deposits to third parties to raise capital."

Patels in distress

Court records show that Susma met and married a New York investment banker
who came to Winter Park a year before First National failed.

Rajib Das was engaged to another woman when he met Susma and was hired by
First National as a consultant. But Das was unable to save First National and
ended up getting sued by his jilted ex-fiancee.

The woman, who also happened to be Das' business partner, accused Das in
federal court of firing her after claiming his affair with Susma represented a
conflict of interest. Das fought back, accusing the woman of attempting to
sabotage their company. But he ultimately settled by paying her $30,000.

After First National failed, Das and Susma moved to New York. Das paid
nearly $2.07 million for an apartment in October 2011.

Meanwhile, the rest of Susma's family remains mired in legal and financial
trouble.

Trimurti Investments Inc., a Florida company controlled by Suketu's wife,
filed for bankruptcy protection in April 2012, listing $19 million in debt. The
company purchased nine commercial properties in Orlando and Jacksonville during
the boom, and each was hemorrhaging money.

Back in England, a company controlled by Susma's father also went bankrupt
— and the Patel patriarch was sued by his own business over allegations of tax
fraud.

Attorneys representing Payless Cash & Carry claimed Madhusudan
fabricated alcohol sales in order to collect about $8 million in tax refunds
from the British government. Though Madhusudan denied the claim, the court
found him guilty. It froze his assets and ordered him to repay the missing
money.

"His evidence was often very unconvincing," Chancery Judge Mann
wrote with regard to Madhusudan's testimony. "He would tend to take refuge
in purported ignorance in a manner which suggested it was a convenient refuge
from a question he did not want to answer."

The Herald-Tribune investigated First Priority Bank in
Bradenton and obtained a set of documents from the state that previously had
been confidential. These records showed, for the first time, the extent of a
bank's insider dealings, critiques from regulators and the minutiae of internal
operations.

The newspaper soon expanded its investigation statewide,
setting out to learn why so many banks failed in Florida during the Great
Recession, who was responsible for their demise and whether regulators could
have done anything to stop it.

The first step was to obtain bank exams from the Office of
Financial Regulation.

This state department sends in a team of regulators about
every two years to pour over loan files, investment portfolios and deposit
accounts, to assess the overall financial condition and interview the top
leaders of each bank.

The exams take about three weeks. Afterward, state officials
produce a report that remains confidential while a bank is open. But thanks to
a law passed by Florida's legislature in 1992, the documents become public one
year after a bank has been shuttered.

Florida is the only state that allows the records to be
accessed so quickly. Elsewhere, documents are either destroyed or released 50
years after a lender fails.

The Office of Financial Regulation turned over records on 40
of the 46 failed banks it oversaw to the Herald-Tribune. Documents from the
remaining six banks will become public over the next 12 months.

The documents are heavily redacted.

Florida laws prevent the government from releasing certain
information, such as the name of individual borrowers, depositors or private
companies that do business with banks. The bank exams do, however, show the
amounts received by certain borrowers and the dates on which loans were made.

By checking mortgage records filed in county courthouses,
the Herald-Tribune was able to identify many of these borrowers.

The newspaper built by hand a database of more than 4,000
deeds, mortgages and foreclosure judgments to show which loans hurt banks the
most.

Besides the 46 failed Florida banks overseen by the state,
22 were regulated by the federal Office of the Comptroller of the Currency or
the now-defunct Office of Thrift Supervision.

These federal agencies also sent examiners to review bank finances.
But the reports they produced are sealed.

The Herald-Tribune was able to obtain information about
these failed banks from reports and lawsuits filed by the Federal Deposit
Insurance Corp., or FDIC.

Some of the post-mortem reports - especially for the largest
failed banks - contained detailed information about misdeeds and poor decisions
by officers and directors.

FDIC reports on BankUnited, Century Bank, Flagship National
Bank, Lydian Private Bank, Ocala National Bank, Peoples First Community Bank, Republic
Federal Bank and Riverside National Bank fell into this category. But most of
the other FDIC reports offer little insight into the reasons for a bank's
failure.

Prior to July 2010, the FDIC was required to write a
detailed report on every failed bank that cost the banking system more that $25
million. But with the passage of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the FDIC only had to file detailed reports on banks that cost
the system more than $200 million.

Two weeks after reporting on
misconduct at a bank in the Panhandle, federal agents charged the chief
executive and two colleagues with fraud. Terry DuBose was only the second CEO
to be charged with a bank crime in Florida since the Great Recession began.

Prosecutors also filed civil
suits against two other failed banks.

One was shut down in
Crawfordville, and the state released confidential documents about another in
Palatka.

Here is look at the continued
reporting on local bankers whose misconduct made them wealthy but contributed
to deep economic pain, often in their own hometowns and to people they had
known all their lives.

AUGUST 2, 2013

Federal regulators shutter First
Community Bank of Southwest Florida and sell its assets. It becomes the 69th
Florida bank to fail since August 2008.

The Federal Deposit Insurance
Corp. files a civil suit against five leaders of Wakulla Bank, saying they took
dangerous risks to keep their bank alive. This Crawfordville bank is just the
seventh in Florida sued for misbehavior during the real estate boom and bust.

A Panama City Beach CEO made his
board pray before each meeting but also made sure he and his loved ones got
taken care of first. Coastal Community Bank was ruled by nepotism and
self-dealing and government officials take action two weeks after our series,
Breaking the Banks, debuted. Authorities indict three bankers, accusing them
of stealing $4 million from a federally insured loan program.

The FDIC sues seven people from a
Sarasota bank for $5.25 million in losses and said the group ignored basic
underwriting principles. The Herald-Tribune wrote extensively about First State
Bank and reported that it lent $4 million in a deal later linked to fraud and
illegal property flipping.

Once a bank fails in Florida, the
state has a year to produce confidential records about it. That deadline passes
for Putnam State Bank, and the Herald-Tribune obtains early reports revealing
insider deals and behavior meant to hide losses.